Consumer Finance Litigation

On June 12, 2017, the Supreme Court in Henson v. Santander Consumer USA Inc. unanimously held that a debt buyer is not a "debt collector" as defined by the Fair Debt Collection Practices Act ("FDCPA") if it is regularly collecting debts that it owns, even if the debts were originated by a third party and purchased after default. Rather, according to the plain text of the statutory definition at issue, a debt buyer must be collecting debts owned by (and owed to) a third party in order to be considered a "debt collector" and therefore subject to the FDCPA.

The Court's analysis examined the meaning of the second prong of the "debt collector" definition found in 15 U.S.C. § 1692a(6). Under this definition, a "debt collector" is anyone who "regularly collects or attempts to collect . . . debts owed or due . . . another." The Court found that "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." The Court noted that nothing in the text of this provision distinguishes between an entity that originates a debt and an entity that purchases a debt and then collects it for itself. Rather, "[a]ll that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for 'another.'" Notably, the Court did not address the first prong of the FDCPA's "debt collector" definition, which embraces those that are engaged in "any business the principal purpose of which is the collection of any debts," without the additional criteria of whether the debts are "owed . . . [to] another."

The petitioners argued that the phrase "owed or due . . . another" must mean debts previously owed to another party due to Congress' use of the past tense "owed" rather than the present tense "owing." The Court swiftly rejected that argument, noting that the word "owed," like many other past participles, is used to convey the present status of the object it describes, such that a debt "owed" another is commonly understood to mean a debt presently owed to another. Therefore, when Santander purchases accounts and collects on them for its own benefit, it is not collecting a debt "owed . . . another" because the debts are owed to it, even though they were formerly owed to another party.

The Court next rejected the petitioners' argument that the fact that a debt buyer regularly purchases and collects on debts after they have gone into default impacted the analysis. The Court explained that, while the statute excludes from the definition of "creditor" those who seek to collect a debt obtained in default, "it doesn't necessarily follow that the definition [of debt collector] must include anyone who regularly collects debts acquired after default," again emphasizing that under the provision at issue, "you have to attempt to collect debts owed another before you can ever qualify as a debt collector." The Court further suggested that a company like Santander could actually fall within the definition of "creditor." Although the definition of "creditor" excludes those who "receive an assignment or transfer of a debt in default," such entities are only excluded if the debt was assigned "for the purpose of facilitating collection of such debt for another."

Finally, the Court rejected the petitioners' policy argument, wherein they posited that Congress did not consider entities who purchase and collect on defaulted debts when drafting the FDCPA because the debt buying industry did not "blossom" until well after the FDCPA was passed. The petitioners argued that, had Congress been aware of the debt buyer collection market, they would have considered debt buyers to be debt collectors under the statute. The Court found this argument to contain "quite a lot of speculation" and refused to push the "constitutionally valid" statutory language aside in favor of speculation about what Congress "might have done had it faced a question that, on everyone's account, it never faced."

Because the Court only addressed half of the "debt collector" definition, it is not entirely clear how the Court's ruling impacts debt buyers who collect on debts they own but whose principal purpose is the collection of debts, which would arguably bring them within the scope of the first prong of the definition. Again, the phrase "owed . . . another" only appears to modify the debts at issue in the second prong-one who "regularly collects or attempts to collect . . . debts owed or due . . . another"-whereas the first prong includes those engaged in "any business the principal purpose of which is the collection of any debts." A party can qualify as a "debt collector" if it meets either prong of the definition. Therefore, while the Court's ruling is certainly helpful to loan servicers like Santander whose business extends beyond debt collection, the jury is still out on how this ruling will affect entities that do little more than collect on debts. Accordingly, a debt buyer should carefully examine its status under the FDCPA's definitions of "debt collector" in crafting its compliance practices and in defending FDCPA claims.