United States: The Supreme Court Clarifies Definition Of "Debt Collector" Under FDCPA

Last Updated: July 6 2017
Article by Zachary S. Schultz

On June 12, 2017, the Supreme Court of the United States (the "Court") issued a decision clarifying who qualifies as a "debt collector" under the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692, et seq. In the case of Henson v. Santander Consumer USA, Inc., No. 16-349 October Term, 2016, 582 U.S. __ (2017), the Court examined "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." Slip Op. at 2. The Court held that a party who purchases a debt and then tries to collect on the debt for itself is not a "debt collector" under the FDCPA.

The plaintiffs in Henson were a putative class whose defaulted auto loans were purchased by Santander Consumer USA Inc. ("Santander"). According to the plaintiffs, Santander then sought to collect on the defaulted loans in ways that the plaintiffs claimed violated the FDCPA. The Court granted certiorari to address the issue of whether an individual or entity that purchases a debt, and then attempts to collect on the debt itself, is a "debt collector" under the FDCPA. 1 The FDCPA defines a debt collector as, amongst other things, anyone who "regularly collects or attempts to collect . . . debts owed or due . . . another." 15 U.S.C. § 1692a(6).

Justice Gorsuch, writing for a unanimous Court, first explained that the FDCPA, by its plain terms "owed . . . another," seemed to focus on third-party debt collectors and not on debt owners attempt seeking to collect debts for themselves. Slip Op. at 3. The plain language of the statute also suggested that it was irrelevant "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." Id. Under a plain reading of the FDCPA, "a debt purchaser like Santander may indeed collect debts for its own account without triggering the statutory definition in dispute . . . ." Id.

The plaintiffs argued that the term "owed" meant that the definition of "debt collector" includes "anyone who regularly seeks to collect debts previously 'owed . . . another.'" Id. at 3-4 (emphasis in original). The plaintiffs took the position that the statute recognizes a distinction between, for instance, originators of a loan, and subsequent purchasers of a debt. Plaintiffs also tried to distinguish between debts purchased before default (where purchasers are excluded from the definition of "debt collector"), and debts acquired after default. The Court ultimately rejected these arguments based on a plain reading of the statute and found that "it simply isn't the case that the statute's exclusions imply that the phrase 'owed . . . another' must refer to debts previously owed to another." Id. at 7.

The term "creditor" is likewise excluded from the statutory definition of a "debt collector." The plaintiffs urged that the statute does not exempt those who regularly seek to collect on defaulted loans and that the statutory definition of "debt collector" includes those who regularly seek to collect debts obtained after default. Id. Under this reading, the plaintiffs argued that those who attempt to collect a debt qualify as either a "debt collector" or an exempt creditor, but not both. The Court disagreed, and explained that "while the statute surely excludes from the debt collector definition certain persons who acquire a debt before default, it doesn't necessarily follow that the definition must include anyone who regularly collects debts acquired after default." Id. at 8. Judge Gorsuch observed that the plain language of the statute does not demonstrate "why a defaulted debt purchaser like Santander couldn't qualify as a creditor." Id. The Court held that "a company collecting purchased defaulted debt for its own account—like Santander—would hardly seem to be barred from qualifying as a creditor under the statute's plain terms." Id.

Ultimately, one who purchases a debt, whether in default or not, and who seeks to collect the debt itself, is not a "debt collector" under the terms of the FDCPA.

The Court also considered the policy arguments advanced by the plaintiffs. Notably, the plaintiffs cited the broad remedial and consumer protection purpose of the FDCPA. The Court observed that the policy considerations of the FDCPA fail in the face of the plain language of the statute as drafted by Congress. Judge Gorsuch explained that "the proper role of the judiciary [is to] apply, not amend, the work of the People's representatives." Id. at 11.

The Supreme Court's opinion in Henson is a landmark decision in the context of FDCPA litigation. Based on the Court's decision, individuals or entities that purchase debts—even defaulted debts—are exempt from the reaches of the FDCPA if the debt buyer seeks to collect on its own debts.

Footnote

1. The Court noted that there were two other arguments raised that the Court did not grant certiorari to address: (1) whether a party who regularly acts as a third-party collection agent for debts owed to others may be considered a "debt collector"; and (2) whether Santander qualified as a debt collector under Section 1692a(6) of the FDCPA, which provides that a debt collector includes those engaged "in any business the principal purpose of which is the collection of any debts." Slip Op. at 3.

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