In all the years I’ve been writing on debt and debt collections in the United States, I and everyone else who has written on the topic has had the same presumption: anyone other than the debt originator is subject to the full provisions of the Fair Debt Collection Practices Act.
And the Supreme Court of the United States just ended that presumption in one decision. The case is Henson v. Santander Consumer USA, Inc., and it is the first written decision from the new Associate Justice Neil Gorsuch.
First, the facts of the case. The loans were auto loans provided by CitiFinancial — full disclosure: I previously had a personal loan through them before they were spun off into OneMain Financial. The petitioner defaulted on the loan, and it’s safe to presume there was a repossession going along with that, with the petitioners also not paying on what was left over after the repossession was sold off. The leftover balance was then sold – key word there – to the respondent in this case, Santander Consumer USA.
Allegedly the debt buyer didn’t adhere to the full provisions of the Fair Debt Collection Practices Act, and the petitioner filed suit. Here’s where things get shaky.
The key concern here is that Santander Consumer USA is a debt buyer. As such, when they were assigned the debt accounts, CitiFinancial washed their hands of the debts entirely and transferred all rights to the debt to the respondent. This is quite different from a collection agency who merely collects a debt on behalf of the creditor. Quoting the opening paragraph of Gorsuch’s opinion:
Disruptive dinnertime calls, downright deceit, and more besides drew Congress’s eye to the debt collection industry. From that scrutiny emerged the Fair Debt Collection Practices Act, a statute that authorizes private lawsuits and weighty fines designed to deter wayward collection practices. So perhaps it comes as little surprise that we now face a question about who exactly qualifies as a “debt collector” subject to the Act’s rigors. Everyone agrees that the term embraces the repo man—someone hired by a creditor to collect an outstanding debt. But what if you purchase a debt and then try to collect it for yourself— does that make you a “debt collector” too? That’s the nub of the dispute now before us.
And the Justice borrowed heavily on the exact wording of the statute in deciding that, ultimately, no, Santander is not a “debt collector” in the eyes of the Fair Debt Collection Practices Act. Specifically “debt collector” is defined at 15 USC § 1692a(6):
The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.
That last word is key. And the statute makes a very important distinction as well. Continuing the paragraph:
Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts.
Again, this is very key. A “debt collector” is clearly someone collecting debts for someone else. But a debt buyer isn’t doing that. A debt buyer purchases all rights and interest to a receivables account — the outstanding debt — and takes ownership of the debt, with the seller writing off all interest in the debt and retaining no rights to it. For all intents and purposes, the debt buyer becomes the creditor. And there is a ready assumption with this that Gorsuch points out:
Both sides accept that third party debt collection agents generally qualify as “debt collectors” under the relevant statutory language, while those who seek only to collect for themselves loans they originated generally do not.
Going on the plain language of the statute, Gorsuch then follows the logic:
All that remains in dispute is 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. Does the Act treat the debt purchaser in that scenario more like the repo man or the loan originator?
And the answer is laid bare:
[We] begin, as we must, with a careful examination of the statutory text. And there we find it hard to disagree with the Fourth Circuit’s interpretive handiwork. After all, 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.
And the rest of the decision basically responds to any other attempts to grammatically interpret the statute in a fashion that pretty much all of us presumed is how the statute would be interpreted.
So basically the Supreme Court has ruled that debt buyers are not debt collectors. Going on the plain text of the statute. In the end, bringing the presumption of the statutory language into the language of the statute is an act for Congress, not the Courts.
Since again, I and many others presumed that debt buyers were treated as debt collectors under the law. This was, arguably, the first time I’ve ever looked specifically at the statutory definition of a debt collector. The difference is very key, since debt collectors are subject to the main provisions of the Fair Debt Collection Practices Act. Items such as debt validation, and the specific provisions surrounding matters such as time and place of contact.
Now does this mean that debt buyers are free to use whatever tactics they want to collect on debts? NO!
The only thing this decision means is debt buyers cannot be sued in Federal Court under the Fair Debt Collection Practices Act. Other Federal and State laws still apply. This means they cannot harass you to collect a debt, and even if relief under the FDCPA cannot be obtained, the provisions laid out can still apply to the definition of harassment.
This means a debt buyer cannot go outside the bounds of what is reasonable to collect a debt. No Court would side with a loan originator calling you at 3am to discuss your debts, let alone a debt collector. That easily falls outside the bounds of what is reasonable and could likely qualify as harassment. It just means you have to sue for harassment instead of violating the FDCPA.
And if you tell a debt buyer in writing to stop trying to contact you, they must still comply.
So while this decision out of the Supreme Court is certainly quite eye-opening, don’t think it means that debt buyers can now do whatever they want. They can’t. They must still act reasonable in collecting a debt. And you can still hold them to that. It also means that debt validation with debt buyers, however, may become a little more complicated.
Hopefully Congress and the President will act on this decision soon to amend the definition of “debt collector” at 15 USC § 1692a(6) to also include debt buyers.