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The Supreme Court Holds that Purchasers of Defaulted Consumer Debts are Not Debt Collectors under FDCPA

In Henson v. Santander Consumer USA Inc., the U.S. Supreme Court, in a unanimous decision, held that a company who purchases debt from another and then collects on that debt for itself does not fall within the Fair Debt Collection Practices Act’s (FDCPA) definition of “debt collector.”

In this case, CitiFinancial Auto (CitiFinancial) loaned money to the petitioners, the petitioners defaulted on the loans, and Santander Consumer USA Inc. (Santander) then purchased the defaulted loans from CitiFinancial and sought to collect on these loans.  The petitioners argued that Santander collected on the loans in ways that violated the FDCPA.

The Court concluded that whether Santander violated the Act depended on whether Santander’s conduct fell within the Acts definition of a “debt collector.”  The FDCPA, in 15 U.S.C. § 1692a(6), defines “debt collector” as anyone who “regularly collects or attempts to collect… debts owed or due … another.”

Focusing on the text of the FDCPA, the Court affirmed the Fourth Circuit’s conclusion that under the facts of the case Santander is not a debt collector.  The Court decided that the determinative factor on whether the company is a debt collector is whether the company was acting for itself or for another when collecting the debt owed.  To decide this issue, the Court had to determine the correct interpretation of the word “owed” under the “debt collector” definition, and it concluded that this word refers to debt which is currently owed to another person and not to debt which has been previously owed to another person.  This is because, according to the Court, neighboring provisions in the FDCPA reveal that Congress routinely used the word “owed” to refer to present (not past) debt relationships and nothing in the text of the statute provides good reason to change this interpretation.  Therefore, though Santander’s debt had been previously owed to CitiFinancial, this did not mean that Santander engaged in collecting “debts owed or due … another” when it collected on this debt as current owner of the debt; and thus, it did not qualify as a debt collector under the FDCPA.

In addition, the Court rejected the petitioner’s policy argument that Santander should fall under the definition of “debt collector” because this would further the FPCPA’s purpose (to provide incentives for independent debt collectors to treat consumers well).  The petitioners argued that had Congress known the industry of defaulted debt purchasers would blossom, it would had treated defaulted debt purchasers as debt collectors in order to protect consumers.  However, the Court reasoned that it is not its 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 … it never faced.”

The Court explicitly stated that its decision does not address two issues: 1) whether Santander qualifies as a debt collector not only because it regularly seeks to collect for its purchased debt but also because it regularly acts as a third-party collection agent for debts owed to others; and 2) whether Santander would fall under the § 1692a(6) alternative definition of “debt collector,”  which includes any business whose principal purpose is to collect any debts.

The full text of the decision may be found here.