On June 12, 2017, the U.S. Supreme Court upheld the Fourth Circuit’s decision in favor of Santander Consumer USA, Inc. (“Santander”) under the Fair Debt Collection Practices Act (“FDCPA”).[1]  In his first written opinion, the recently-appointed Justice Neil Gorsuch wrote on behalf of a unanimous Court in finding that the FDCPA does not apply to debt buyers like Santander under one of the definitions for “debt collector.”  This decision has potentially broad ramifications for financial institutions that purchase debts for collection as part of their business, as many such companies may be exempt from lawsuits under the FDCPA.  At the same time, the decision leaves the door open to potential future disputes under the remaining definitions under the FDCPA.

Enacted in 1977, the FDCPA was designed to address abuses by persons who collect debts on behalf of a creditor.[2]  The FDCPA prohibits particular practices, such as harassment and use of false or misleading representations, and authorizes private damages actions against violators.  To become subject to the FDCPA, the person must be a “debt collector” as defined under the statute.  That definition includes “any person … in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect … debts owed or due or asserted to be owed or due another.”[3]

In this case, Santander purchased consumer loans that CitiFinancial Auto extended to petitioners for the purchase of automobiles.  Santander stepped into CitiFinancial’s shoes to collect the debts.  Construing only the definition relating to persons who collect debts “owed or due another,” the Court held that debt buyers like Santander do not qualify as “debt collectors” because they collect debts for themselves and not for “another.”[4]  The Court declined to extend the definition to include debt buyers, because that practice did not exist in 1977, and thus Congress did not have occasion to consider such practice when the FDCPA was enacted.

Although this case is a major victory for debt buyers like Santander in fending off consumer complaints, the battle may not be over.  In its decision, the Court specifically noted that it did not consider whether Santander may be subject to the FDCPA under the alternate definition of debt collectors as businesses whose “principal purpose” is debt collection.[5]  The Court also did not consider the argument that Santander, in other contexts, acts as a third-party collection agent (and thus collects debts for “another”).[6]

Besides the FDCPA, various states have enacted consumer protection laws that regulate debt collection practices, which could cover debt buyers.  The Consumer Financial Protection Bureau (“CFPB”) also has been considering new regulations that would cover debt buyers.[7]  It is unclear whether the progress of that rulemaking may be affected by recent revisions proposed by the CFPB,[8] or President Trump’s recent executive action requiring federal agencies to identify two regulations for repeal for each new one proposed.[9]

Endnotes:

[1] Henson v. Santander Consumer USA, Inc., __ U.S. __, No. 16-349 (June 12, 2017), available at https://www.supremecourt.gov/opinions/16pdf/16-349_c07d.pdf.

[2] See 15 U.S.C. § 1692 et seq.

[3] See 15 U.S.C. § 1692a(6).

[4] See supra note 1.

[5] See id.

[6] See id.

[7] See Small Business Review Panel for Debt Collector and Debt Buyer Rulemaking:  Outline of Proposals under Consideration and Alternatives Considered (CFPB July 28, 2016), available at http://files.consumerfinance.gov/f/documents/20160727_cfpb_Outline_of_proposals.pdf.

[8] CFPB Announces New Direction for Debt Collection Rulemaking, ACA News, June 8, 2017, available at https://www.acainternational.org/news/cfpb-announces-new-direction-for-debt-collection-rulemaking.

[9] Executive Order on Reducing Regulation and Controlling Regulatory Costs (Jan. 30, 2017), available at https://www.whitehouse.gov/the-press-office/2017/01/30/presidential-executive-order-reducing-regulation-and-controlling.