Purchasers of Debt found not “Debt Collectors” under the FDCPA

By: Antonia Edwards

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

            The Fair Debt Collection Practices Act (FDCPA) was enacted to stop debt collectors from engaging in unfair and deceptive practices when collecting consumer debts.  The United States Supreme Court analyzed the FDCPA twice in 2017.   In Henson v. Santander Consumer USA Inc., [1]  the Court held that an individual or an entity who regularly purchases debt originated by someone else and then seeks to collect that debt for their own account is not a debt collector under the FDCPA.[2]

In Henson, four separate individuals purchased a car with money borrowed from CitiFinancial Auto (“CitiFinancial”).[3]  Following their default on the loans, CitiFinancial sold the loans to Santander Consumer USA Inc., a consumer finance company.  Santander began communicating with the individuals attempting to collect the debt.[4]  The individuals alleged that Santander used unfair and deceptive practices by misrepresenting the amount of the debt and its entitlement to collect. The individuals thereafter sued Santander, asserting that it violated the FDCPA.[5]  In response, Santander argued that the individuals did not demonstrate that Santander qualified as a debt collector under the FDCPA, which is necessary to trigger liability.

Section 1692(a)(6) of the FDCPA defines a debt collector as “any person . . . who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”[6] The parties disagreed on whether Santander, which purchased a defaulted debt and tried to collect on its own accord, qualified as a debt collector. Petitioners argued that the word “owed” captures anyone who regularly seeks to collect debts previously owed to another.[7] Accordingly, Santander would be deemed a “debt collector” under the statute because Santander sought to collect debts previously owed by someone else.[8] The Court rejected this argument stating that if Congress wanted this interpretation, it would have been explicitly stated.[9] Congress routinely used the word “owed” to refer to present, not past debt relationships in other subsections of §1692.[10]

Since petitioners were not able to overcome the plain meaning of the word “owed”, they turned to policy and argued Congress never had the chance to consider what should be done about entities that purchase defaulted debt since the enactment of the FDCPA in 1977.[11] Moreover, if Congress anticipated entities would purchase defaulted debts, it would have wanted the FDCPA to apply to them as well.[12] The Court treated this argument as mere speculation and stated that it would not rewrite legislation, but that Congress could change the definition of debt collector under the FDCPA.[13]

            Henson was a unanimous decision and the first written by Judge Neil Gorsuch. Although this decision currently limits consumer protections, it is not a clear win for debt buyers going forward. At its discretion, the Consumer Financial Protection Bureau (“CFPB”) can update the regulations concerning debt collection practices.[14] Four days before Henson was decided, CFPB Director Richard Cordray publicly stated at an Advisory Board Meeting that the CFPB had every intention to write new regulations in regard to debt collection[15] because “so much is happening in this marketplace that the law cannot easily keep pace with developments. In light of potential new regulations, courts may revisit the FDCPA’s definition of debt collector in the near future.