United States: Supreme Court Refuses To Extend The Scope Of The FDCPA To Consumer Finance Company

On June 12, 2017, the United States Supreme Court rendered a unanimous decision holding that a company collecting debts that it purchased for its own account does not meet the statutory definition of "debt collector" under the Fair Debt Collection Practices Act (FDCPA) because the debts are no longer "owed or due another." We previously reported on oral arguments in this case during which the Court expressed some hesitation, making the outcome uncertain at that time. The Court's recent decision settles the matter, however, and resolves a previously existing Circuit split on the narrow issue whether an entity purchasing defaulted debts for collection on its own account qualifies as a debt collector under the FDCPA on that basis alone. The Court decision is limited, however, and does not apply to entities qualifying as debt collectors under alternate statutory definitions.


In this case, Plaintiffs alleged their debt was purchased after the debt was already in default. Plaintiff argued that the purchaser was thus a debt collector, while the buyer, whose principal purpose is consumer finance, not the collection of debts, asserted it was not covered by the FDCPA since it was collecting the debt on its own behalf and not for another entity. The district court agreed with Defendant and Plaintiffs appealed. The Fourth Circuit affirmed the dismissal of Plaintiffs' claims, holding the consumers had not alleged Defendant was acting as a debt collector under the FDCPA because, under the plain language of the statute, a debt collector must attempt to collect a debt "for another," not for itself as Defendant did after it purchased the debt at issue. Plaintiffs appealed to the Supreme Court.

Summary of the Opinion

Despite the Court's apparent hesitation during oral arguments, the decision delivered by Justice Gorsuch for a unanimous Court is short and straightforward, resolving the questions of both statutory construction and policy in favor of the debt buyer and the entire collection industry.

Before addressing the issue, the Court emphasized the limited scope of its review, which specifically excluded two of the three statutory definitions of "debt collector" under Section 1692a(6) of the FDCPA, namely: (1) entities "engaged in any business the principal purpose of which is the collection of any debts;" and (2) entities collecting their own debts, but "using any name other than [their] own" to do so.

Having thus limited the scope of its decision, the Court proceeded to focus entirely on whether Defendant was a "debt collector" under Section 1692a(6)'s remaining statutory definition, anyone "who regularly collects or attempts to collect ... debts owed or due . . . another." Thus, in the words of the Court, "[a]ll that remains in dispute is how to classify individuals and entities who regularly purchase debts originated by someone else and then seek to collect those debts for their own account."

This definition, by its plain terms, limits debt collectors to those regularly seeking to collect debts "owed ... another." The Court disagreed with Plaintiffs' interpretation that the word "owed" referred to the past tense, thus excluding loan originators but including debt purchasers. Instead, the Court concluded, because past participles like "owed" are routinely used as adjectives to describe the present state of a thing, the word "owed ... another" in the definition of a debt collector plainly incorporates both currently and formerly owing another. In other words, it does not matter "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 Court also pointed out that "contextual cues" supported Defendant's reading of the statute because Congress drew a distinction in several portions of the statute, including the very definitional section being discussed, between persons originating the debt and persons to whom a debt is "owed" currently. However, Congress drew no such distinction in § 1692a(6), instead opting to define a debt collector simply as one who collects a debt on behalf of another.

Moving on to policy, the Court found Plaintiffs' arguments unavailing. While Plaintiffs were correct that Congress likely did not envision a business of purchasing defaulted debt at the time it passed the FDCPA in 1977; the Court rejected Plaintiffs' invitation to engage in speculation. "[I]t 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." Even if the Court were to consider Congress' possible take on the debt buying industry, "the speculation [Plaintiffs] urge upon us is far from unassailable." To be sure, a reasonable legislator would likely "wonder whether a large financial institution like [Defendant] is any more or less likely to engage in abusive conduct than another large financial institution like [the originator of Plaintiffs' debt]." On balance, the statutory text was plain and unambiguous as to the definition of a "debt collector", and the Court refused to usurp Congress' role to amend the statute.

Practical Impact of Supreme Court's Decision

The Court's decision may bring some clarity for financial services companies that acquire debts after they are in default, for example in connection with a merger or portfolio sale, and will almost certainly have a favorable impact on that portion of the industry going forward. The decision will likely prove less useful to companies whose "principal purpose" is the collection of debts, however, although the Court's decision does not close the door on further developments to that statutory definition of "debt collector," as well.

We will monitor the lower courts' decisions in the wake of the Court's opinion and report back.

The Troutman Sanders' Consumer Financial Services Law Monitor blog offers timely updates regarding the financial services industry to inform you of recent changes in the law, upcoming regulatory deadlines and significant judicial opinions that may impact your business. To view the blog, click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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David N. Anthony
Ethan G. Ostroff
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