June 12, 2017
Today, June 12, 2017, the U.S. Supreme Court issued its unanimous opinion in the case of Henson v. Santander Consumer USA, Inc. The case presented the question of whether a company that regularly attempts to collect debts it purchased after the debts had fallen into default is a "debt collector" subject to the Fair Debt Collection Practices Act. Justice Gorsuch wrote the opinion for the unanimous Court to affirm the U.S. Court of Appeals for the Fourth Circuit, which held that Santander was not a "debt collector" subject to the FDCPA when it bought, held, and then serviced on its own account consumer debts that were in default at the time of purchase.
The Court had to decide between the plain language of the text and arguments over policy, and the Court chose the plain language. The Court focused on the FDCPA's definition of "debt collector:" "[A]ny person … who regularly collects … debts owed or due … another." The Court succinctly noted (emphasis ours):
"… the Act defines debt collectors to include those who regularly seek to collect debts "owed ... another." 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." And given that, it would seem a debt purchaser like Santander may indeed collect debts for its own account without triggering the statutory definition in dispute, just as the Fourth Circuit explained."
The Court intentionally and specifically left aside two arguments not raised in the petition for certiorari: whether Santander could be a "debt collector" under the FDCPA because it "regularly acts as a third party collection agent for debts owed to others," or because the definition of "debt collector" also includes those engaged "in any business the principal purpose of which is the collection of any debts." Focusing on the narrow question of whether a person can be a "debt collector" when it collects a debt it owns, the Court made the appropriate textual reading that such person is not, in that circumstance, collecting a debt "owed or due … another."
This decision has important implications for purchasers of consumer debts in contractual default at the time of purchase. Leaving aside other considerations, the simple fact that the debt was in default when the purchaser obtained the debt (assuming an outright purchase, not a purchase contingent on collections) is not enough to make the purchaser a "debt collector" subject to the FDCPA with respect to that debt. Financial services companies that buy and then service portfolios of mixed accounts - some in contractual default, some performing - should look to this opinion for support for the position that their post-purchase servicing of those accounts is not subject to the FDCPA.
The Court summed up the opinion with a statement that made clear that it is for Congress to revise the FDCPA if Congress wants the definition of "debt collector" to capture purchasers of consumer debts in default: "Constant competition between constable and quarry, regulator and regulated, can come as no surprise in our changing world. But neither should the proper role of the judiciary in that process - to apply, not amend, the work of the People's representatives."