Consumer Finance Insights
March 6, 2017

SCOTUS Poised to Decide Whether Debt Buyers Are Subject to the FDCPA

On Friday, February 24, 2017, more than half of the U.S. states’ attorneys general (the Amici States) filed an amicus brief in support of the petitioners in Henson v. Santander Consumer USA, Inc., a case that is currently before the U.S. Supreme Court.  The Amici States, along with the petitioners, urge the Court to hold that debt buyers—like respondent Santander Consumer USA, Inc. (Santander)—are subject to the Fair Debt Collection Practices Act (FDCPA).

The parties in Henson dispute whether a debt buyer is a debt collector for purposes of the FDCPA, which defines “debt collector,” in pertinent part, as any person “who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”  15 U.S.C. § 1692a(6).  In general, debt collectors are charged with collecting a debt, but do not themselves own that debt.  Conversely, a debt buyer is an entity that purchases a consumer debt typically after it has fallen into default.

In Henson, respondent Santander was originally hired as a debt servicer to collect money that the petitioners and other consumers owed on their automobiles to CitiFinancial Auto after having fallen into default status (i.e., Santander was a debt collector governed by the FDCPA).  However, after CitiFinancial Auto’s debt collection practices became the subject of a class action lawsuit, Santander purchased the petitioners’ debts from the company, thereby transitioning from a debt servicer to a debt buyer.  The petitioners eventually filed suit against Santander, alleging that Santander persisted in seeking recovery of the debts, despite knowing that CitiFinancial Auto agreed to waive a portion of the debts, in violation of the FDCPA.

Santander argues that, as a debt buyer, it is exempt from the provisions of the FDCPA.  It points to the fact that the FDCPA’s definition of “debt collector” provides that the person collecting the debt does so as to debts “owed or due . . . another.”  Both the district court and Fourth Circuit agreed with this position, with the latter observing that “owed or due . . . another” unambiguously excludes a defendant collecting a purchased debt and that, in buying the debts it was previously hired to collect, Santander successfully exempted itself from the provisions of the FDCPA.

The Amici States and the petitioners—who filed their brief on February 17, 2017, one week before the Amici States—urge the Supreme Court to reverse these lower courts, asserting that Santander’s ability to dodge the FDCPA by purchasing petitioners’ debts is a loophole that was not intended by Congress in enacting the FDCPA.  They argue that inclusion of debt buyers in the FDCPA’s definition of “debt collector” makes sense in part because of Congress’s purpose and justifications for enacting the statute.  Specifically, they point to the fact that Congress enacted the FDCPA to regulate the practices of debt collectors because collectors, unlike original creditors, have no ongoing relationship with debtors, and are therefore unlikely to be concerned about preserving their reputation or goodwill.  With this in mind, the Amici States and petitioners argue that debt buyers and debt collectors are effectively the same from the perspective of consumers and that Congress meant for debt buyers to be similarly regulated.

Industry members should monitor the developments of this case because the outcome will likely determine whether debt buyers will, moving forward, be subject to the consumer protection provisions of the FDCPA.  Oral argument in the case is currently scheduled for April 18, 2017.