A bank or other person may collect debts that it purchased for its own account without triggering the statutory requirements of the Fair Debt Collection Practices Act, a unanimous Supreme Court recently ruled.

What happened

The FDCPA was enacted in 1977, placing specific requirements on debt collectors. As defined by Section 1692a(6) of the statute, a “debt collector” is anyone who “regularly collects or attempts to collect … debts owed or due … another.”

Ricky Henson borrowed money from CitiFinancial Auto to purchase a car and then defaulted on the loan. Santander Consumer USA Inc. purchased the loan from CitiFinancial and sought to collect it. Henson filed a putative class action alleging that Santander’s collection efforts ran afoul of the FDCPA.

But the bank moved to dismiss the suit, arguing that it did not qualify as a “debt collector” under the statute because it did not regularly seek to collect debts “owed … another.” Instead, Santander only attempted to collect debts that it purchased and owned. A district court and the U.S. Court of Appeals for the Fourth Circuit both agreed.

Henson filed a writ of certiorari with the Supreme Court, noting that a circuit split existed on the issue. While the Eleventh Circuit reached the same conclusion as the Fourth Circuit, the Third and Seventh Circuits ruled otherwise. The justices granted cert and heard oral argument earlier this term.

In a unanimous opinion—and the first authored by new justice Neil Gorsuch—the Court sided with the bank, finding it “hard to disagree with the Fourth Circuit’s interpretive handiwork.”

“After all, the Act defines debt collectors to include those who regularly seek to collect debts ‘owed … another,’” the justices said. “And by its plain terms this language seems to focus our attention on third party collection agents working for a debt owner—not on a debt owner seeking to collect debts for itself. Neither does this language appear to suggest that we should care how a debt owner came to be a debt owner—whether the owner originated the debt or came by it only through a later purchase. All that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for ‘another.’”

The plaintiffs argued that this reading of the FDCPA did not account for tense, as “owed” is the past participle of the verb “to owe.” To Henson and the other borrowers, this meant the statute excludes loan originators but embraces debt purchasers like Santander. If Congress wanted to exempt all present debt owners from the definition, it would have used the present participle “owing,” the plaintiffs told the justices.

“But this much doesn’t follow even as a matter of good grammar, let alone ordinary meaning,” Justice Gorsuch wrote. Past participles are “routinely” used as adjectives to describe the present state of a thing (for example, “burnt toast is inedible” or “a fallen branch blocks the path”) and the definition also uses the word “due” to describe a debt currently due at the time of collection. “So to rule for [the plaintiffs] we would have to suppose Congress set two words cheek by jowl in the same phrase but meant them to speak to entirely different periods of time,” the Court said.

Neighboring provisions of the statute demonstrate that Congress used the word “owed” to refer to present and not past debt relationships, the justices added, and other contextual clues can be found as well, including that lawmakers had no problem distinguishing between originators and purchasers.

The plaintiffs also hung their hat on public policy, arguing that the FDCPA was intended to protect consumers and incentivize debt collectors to treat borrowers well. Given the growth of the defaulted debt market since the statute’s passage, Henson contended the Court should recognize the need to include banks like Santander in the definition of “debt collector” with an eye toward fulfilling Congress’ goal of deterring untoward debt collection practices.

But the justices were not persuaded. “All this seems to us quite a lot of speculation,” Justice Gorsuch wrote. “And while it is of course our job to apply faithfully the law Congress has written, 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 never faced.”

Sticking with the motto “that [the legislature] says … what it means and means … what it says,” the justices said the issue was a matter for Congress, and not the Court, to resolve, affirming dismissal of the lawsuit.

To read the opinion in Henson v. Santander Consumer USA, Inc., click here.

Why it matters

The Supreme Court’s decision resolves a significant split among the federal appellate courts with a declaration that the FDCPA’s definition of a “debt collector” does not apply to a company collecting debts in default that it purchased. The justices explicitly left two questions not pursued by the parties unanswered, however: whether a business engaged in third-party debt collection falls under the statute when collecting on its own accounts and whether the Court should apply a broader definition of “debt collector” that encompasses those engaged “in any business the principal purpose of which is the collection of any debts.” Financial institutions should also keep in mind that because the Court’s opinion is limited to the FDCPA, they could still face additional requirements and potential liability under state debt collection laws.