US Supreme Court Clarifies Definition of “Debt Collector”

By Creditor’s Rights & Bankruptcy Practice Group

On June 12, 2017, in a decision written by newest Supreme Court Justice Neil Gorsuch, the Supreme Court unanimously held that a party that purchases debts and then pursues collection activity on its own is not a “debt collector” as defined in the Fair Debt Collection Practices Act (“FDCPA”). The Court’s decision in Henson v. Santander Consumer USA Inc. (582 U.S. __ (2017)) upheld the Fourth Circuit Court of Appeals’ ruling in a case that pitted consumers who had defaulted on their car loans against Santander Consumer USA Inc. (“Santander”), who had purchased the defaulted loans from the loan originator and then sought to collect.

The FDCPA prohibits “debt collectors” from engaging in certain types of activities in their collection efforts. It further provides consumers who have been subject to prohibited activities with remedies against the debt collectors. By definition, a “debt collector” is one who “regularly collects or attempts to collect . . . debts owed or due . . . another.” (15 U.S.C. §1692a(6)). Henson distinguishes between third parties hired by loan originators to collect debts for the loan originators—to whom the FDCPA’s statutory definition of “debt collector” applies—and third parties who purchase a debt and then seek to collect on their own. When a third party purchases a debt, the debt is no longer “owed or due . . . another” but is instead owed or due to the third party purchaser. The Henson consumers argued that these debts were at one time “owed” to another party and that Santander was thus a “debt collector.” However, the Court rejected the consumers’ linguistic gymnastics as inconsistent with other provisions of the FDCPA. The Court declined to expand the definition of “debt collector” to include parties like Santander who purchase debts and then pursue collection, stating that any such expansion must come from Congress and not the Court.

The Henson decision means that under the law as currently written, a party engaged in collection activity may avoid classification as a “debt collector” under the FDCPA if it purchases the debts it is collecting rather than merely collecting on behalf of another. Other law may still apply, but the FDCPA’s provisions governing “debt collectors” will not. Congress could conceivably amend the FDCPA to declare otherwise in the future, but for now, the Henson ruling is law. If you have questions about the Court’s ruling, the FDCPA or debt collection, please contact a member of Saalfeld Griggs’ Creditor’s Rights practice group.

Joshua Feil is an associate in the Litigation and Creditors’ Rights & Bankruptcy practice groups. The information in this article is not intended to provide legal advice. For professional consultation, please contact Erich Paetsch or Joshua Feil at Saalfeld Griggs PC.  503.399.1070.  © 2017 Saalfeld Griggs PC

Joshua D. Feil