The U.S. Supreme Court has unanimously ruled that a purchaser of defaulted debt did not qualify as a debt collector under the Fair Debt Collection Practices Act (FDCPA) because it did not collect debts "due another", but instead collected debts that it had purchased and owned.

The decision in Henson v. Santander Consumer USA Inc., the first Supreme Court opinion written by Justice Gorsuch, involved Santander Consumer USA’s efforts to collect on auto loans that it had purchased after the petitioners had defaulted. The petitioners contended that Santander was a debt collector under the FDCPA based on the portion of the statutory definition of a "debt collector" that includes a person that "regularly collects or attempts to collect…debts owed or due…another."

Relying primarily upon the statutory text, the Court affirmed the Fourth Circuit ruling that a debt buyer can collect debts that were in default when purchased without triggering the FDCPA definition of "debt collector." The Court concluded that the statutory language did not 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." According to the Court, "[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.' 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…."

The Court rejected the petitioners' grammatical argument that the words "debts owed" mean debts that were previously owed or due another and does not refer to present debt relationships, and their inferential argument that the statute's "debt collector" definition necessarily includes anyone who regularly collects debts acquired after default. Observing that "from the beginning [public policy] is the field on which [the petitioners] seem most eager to pitch battle," the Court turned last to the petitioners' policy-based argument. The Court dismissed as "quite a lot of speculation" their policy argument that, had Congress contemplated the "advent" of the debt-buying industry, it would have found that "no other result [than treating debt buyers as debt collectors] would be consistent with the overarching congressional goal of deterring untoward debt collection practices." In doing so, the Court observed that "the parties and their amici manage to present many and colorable [policy] arguments both ways…, a fact that suggests to us for certain but one thing: that these are matters for Congress, not this Court, to resolve."

In addition to defining a "debt collector" to include persons who regularly collect debts owed or due another, the FDCPA contains an alternative definition of a "debt collector" that, subject to various exceptions, covers persons engaged "in any business the principal purpose of which is the collection of any debts." Although the parties had "briefly allude[d]" to this alternative definition, the Court did not address it because "the parties haven’t much litigated that alternative definition and in granting certiorari we didn’t agree to address it either." The Court also declined to address another issue not presented by the certiorari petition, namely whether a company may qualify as a "debt collector" if it "regularly acts as a third party collection agent for debts owed to others." As a result, debt buyers should consult with counsel regarding Henson's impact on their operations.

While Henson is a welcome development, debt buyers should remain mindful of state debt collection laws that incorporate FDCPA requirements. A number of states have amended their debt collection laws to cover debt buyers, with Colorado a recent example. It is also unclear how the Consumer Financial Protection Bureau (CFPB) will respond to Henson in connection with its debt collection rulemaking. The CFPB plans to conduct two such rulemakings—one for "debt collectors" subject to the FDCPA and the other for first-party debt collection.

Attorneys in Ballard Spahr's Consumer Financial Services Group regularly advise clients on compliance with the FDCPA and state debt collection laws and defend clients in FDCPA lawsuits and enforcement matters. The Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance.


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