Supreme Court Finds That Loan Purchaser Collecting Its Own Debt Is Not Subject to Fair Debt Collection Practices Act

The Headline:

In Henson v. Santander Consumer USA Inc., ____ S.Ct. ____, 2017 WL 2507342 (2017), a unanimous Supreme Court found that a party that purchased defaulted loans from another creditor was not subject to the Fair Debt Collection Practices Act.

The Facts (Simplified):

Santander purchased a package of defaulted consumer auto loans from CitiFinancial Auto.  The petitioners (consumer borrowers) apparently alleged violations of the Fair Debt Collection Practices Act.  Under its express language, the Act governs conduct of a “debt collector” – that is, anyone who “regularly collects or attempts to collect . . . debts owed or due . . . another.”  15 U.S.C. §1692(a)(6).

As Justice Gorsuch (writing his first opinion) framed the issue, the parties generally agreed that third party debt collection agents are “debt collectors,” while those who seek only to collect loans for themselves generally are not.  That left the following:  “All that remains in dispute is how to classify . . . entities who regularly purchase debts originated by someone else and then seek to collect those debts for their own account.”

            In short, the Court found the statutory language to be clear and unambiguous.  As the Court stated:

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.

The opinion then engaged in an expansive statutory and grammatical analysis, which addressed what the Court apparently viewed as the Petitioners’ tortured attempt to read into the statute language that simply was not there.  In summary, the Court found that the Petitioners could not get past the threshold issue:

After all and again, under the definition at issue before us you have to attempt to collect debts owed another before you can ever qualify as a debt collector.

Finally, the petitioners argued that the purchasing of defaulted debt as an industry was not something Congress contemplated when the FDCPA was passed.  Again, the Court declined to legislate from the bench:

And while it is of course our job to apply faithfully the law Congress has written, it is never our job to rewrite a constitutionally valid statutory text under the banner of speculation about what Congress might have done had it faced a question that, on everyone’s account, it never faced. See Magwood v. Patterson, 561 U.S. 320, 334, 130 S.Ct. 2788, 177 L.Ed.2d 592 (2010) (“We cannot replace the actual text with speculation as to Congress’ intent”).

Our Take:

Regardless of how one feels about the consumer debt collection industry, the logic behind Justice Gorsuch’s analysis is unassailable.  Particularly relevant is that a unanimous Court joined Justice Gorsuch in refusing to legislate or otherwise address judicially public policy concerns that are best left to the elected legislature.  This bodes well for a more consistent approach to similar issues going forward.

*Roger Cox, a shareholder resident in Underwood’s Amarillo office, is Board Certified in Business Bankruptcy Law, Commercial Real Estate Law, and Farm & Ranch Real Estate Law by the Texas Board of Legal Specialization.  Mr. Cox is the author of Cox’s Texas Creditors Rights Laws Annotated (Thomson Reuters 2017), and a former contributor to the SMU Law Review.

This article is for general and academic information only and is not intended as legal advice or as a specific position asserted on behalf of any existing or future client of the firm.

Share this post