- U.S. Supreme Court Rules on Santander; Definition of "Debt Collector" under FDCPA Still Unclear for Debt Buyers
- July 10, 2017 | Author: David Mullen
- Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Brooklyn Heights Office
On June 12, 2017, the Supreme Court of the United States (the Court) released a unanimous decision in Henson, et al v. Santander Consumer USA Inc. The case focused on the interpretation of a section of the Fair Debt Collection Practices Act (FDCPA) definition of "debt collector" and its application to debt buyers.
Under the plain language of the statute, the term "debt collector" refers to anyone who "regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." While the full text of the statute contains an alternative definition, the Court did not address this, as the parties did not raise it.
The petitioners in the case were consumers whose defaulted auto loans were sold by the original creditor to the respondent, Santander Consumer USA, Inc. (Santander), who sought to collect on those debts. The petitioners wanted Santander to be considered a "debt collector" within the meaning of the statute so that the FDCPA would apply to its activities. The Fourth Circuit Court of Appeals, in a departure from previous decisions from the Third, Seventh, and Eleventh Circuit Courts, found that Santander was not a "debt collector" within the meaning of the statute; since Santander both purchased the debt and sought to collect on the same debt itself, it was not trying to collect the debt for "another," and was therefore not subject to the FDCPA.
The first argument addressed by the Court was one of grammatical construction. The petitioners noted the use of the word "owed," a past participle; they claimed this meant that Congress meant to include debt purchasers, who "necessarily seek to collect debts previously owed another." Justice Neal Gorsuch, in his first Opinion since being appointed and writing for the unanimous court, found that logic unconvincing, pointing out the use of the past participle as an adjective to describe the present state of a thing; "burnt toast is inedible, a fallen branch blocks the path, and (equally) a debt owed to a current owner may be collected by him or her." The Court also noted that elsewhere in the statute, the word "owed" is used in the description of creditors, who are exempt from the FDCPA.
The petitioners also advanced a policy argument. With the increased market of debt sales, they argued, Congress would have intended the FDCPA to apply to debt buyers. The Court found it similarly unconvincing, saying that "it is never our job to rewrite a constitutionally valid statutory text under the banner of speculation about what Congress might have done had it faced a question that, on everyone's account, it had never faced."
The Court's ruling is narrow, and does not apply to the alternative FDCPA definition of "debt collector" as "any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts." Conceivably, this definition could embrace entities who both buy debt and whose principal business is the collection of debt. The ruling here may only apply to institutions that purchase debt, but for whom the collection of debt is not the principal purpose of their business, which may be a question subject to litigation and review in the future.
The issue as to who is or is not a "debt collector" under the FDCPA still remains open, but is better defined as of today. Debt buyers, whose principal business is not the collection of debt, but only seek to collect the debt they own as a current creditor, are not a debt collector under the FDCPA.