In Justice Gorsuch’s first written opinion, the Supreme Court unanimously upheld a ruling by the Fourth Circuit Court of Appeals that declined to expand the Fair Debt Collection Practices Act’s (“FDCPA”) definition of “debt collector” to creditors who purchase defaulted debts.
The petitioners in Henson et al. v. Santander Consumer USA, Inc., Case No. 16-349, were debtors on automobile finance agreements that had originated with CitiFinancial Auto. The debtors then defaulted on the automobile loans and the respondent, Santander, purchased the defaulted obligations and then began collection efforts. The petitioners brought suit against Santander, alleging that it had violated the FDCPA in its debt collection efforts. Santander countered that it did not fall within the definition of “debt collector” because it didn’t regularly collect debts “owed…another” but collected its own debts. Both the district court and Fourth Circuit ruled in favor of the petitioner.
The Supreme Court’s narrow analysis focused on the FDCPA’s definition of “debt collector” as any person who regularly collects or attempts to collect “debts owed or due or asserted to be owed or due another.” (emphasis added). The Court wrote that this plain language of the statute is concerned with third-parties who work for debt owners, not those who collect their own debts. The petitioners countered that the past tense of “owed” brings within the FDCPA anyone who collects or attempts to collect a debt that was previously owned by another person. In other words, that an original creditor falls outside the statute but any person who purchases a debt is a “debt collector”. In response, the Court found the petitioners’ reading of the statute to be too technical and deemed that “owed” was used as an adjective to describe the debt’s present status, as in “burnt toast”. In further support of the Court’s reading, the petitioners themselves conceded that the “due” of “owed or due another” described a debt currently due at the time of collection. The Court went on to review other uses of the word “owed” within the other sections of the FDCPA, all of which referred to present debt relationships.
Petitioners alternatively argued that the FDCPA exclusion of persons collecting or attempting to collect debt which was not in default at the time it was obtained by such person by implication includes those who obtain defaulted debts as “debt collectors”. The Court replied that this inferential conclusion does not necessarily follow and more importantly, fails to address the FDCPA’s requirement that one collect or attempt to collect debts owed by another before qualifying as a debt collector. Lastly, the petitioners made a policy argument that Congress did not anticipate the rise of the defaulted debt industry when it drafted the FDCPA in 1977 and therefore, debt purchasers like Santander should be treated as debt collectors, but the Court declined to speculate as to Congress’s intent.
The Supreme Court’s decision in Henson v. Santander Consumer USA resolved a circuit split in which some circuits e.g. the Third and Seventh Circuits had held that the purchaser of a debt in default is a “debt collector” for purposes of the FDCPA even though it owns the debt and is collecting for itself. While Congress may revisit the FDCPA in response, in the meantime, the Court has granted a boon to the defaulted consumer receivables industry.
