Consumer Finance Insights
April 24, 2017

Supreme Court Hears Oral Argument on Scope of FDCPA

On April 18, 2017, the United States Supreme Court, once again with nine justices sitting on the bench, heard oral arguments in Henson v. Santander Consumer USA, Inc., No. 16-349, concerning the scope of the Federal Debt Collection Practices Act (FDCPA), codified at 15 U.S.C. § 1692 –1692p.  As previously reported by this blog, the issue presented in Henson was “[w]hether a company that regularly attempts to collect debts it purchased after the debts had fallen into default, is a debt collector subject to the Fair Debt Collection Practices Act?”

Santander Consumer USA, Inc. (“Santander”), the respondent in this case, serviced auto loans on behalf of Citi.  It then purchased a portfolio of auto loans from Citi, including those it had been servicing.  Henson, the petitioner, has a loan that was part of that transaction.  Henson challenged Santander’s collection practices under the FDCPA in a federal district court.  Both the district court and the Fourth Circuit agreed with Santander that, after it purchased the debt from Citi, it was no longer subject to the FDCPA because it was no longer a debt collector; it was not collecting a debt owed or due another.

During the oral argument, the justices let the parties talk for long stretches without interruption—a somewhat unusual dynamic during Supreme Court oral arguments.  Justice Thomas, Justice Gorsuch and Justice Kennedy said nothing, although the rest of the judges all engaged at various points.  The bulk of the argument had to do with what the phrase “owed or due” means.  Henson’s counsel argued that “owed” and “due” have different meanings in time in this statute—while the debt is due to the debt buyer (here, Santander), it is owed to the originator of the debt (here, Citi).

Under Henson’s interpretation, Santander remains subject to the FDCPA after it purchased the debt it was collecting, because it is collecting debt that is owed to another (the originator).   Justices Roberts, Kagan and Alito all identified that reading as potentially problematic, with Justice Roberts commenting to Henson that “you read ‘owed’ as referring to the past; you read ‘due’ as referring to the present, and that’s –that’s unusual”; Justice Kagan stating “[b]ut my problem when I think about this word is that I can never get it to mean what you want it to mean, no matter  how I construct a sentence.”; and Justice Alito commenting that “the strength of your –the –the degree of absurdity that you have to show under (iv), depends on the ambiguity of the phrase due –‘owed or due,’ and I mean, I think that’s not just –not the first way you’d read that.  It’s not the fiftieth way you would read that.  It’s just you’re –you’re fighting –you’re really going uphill on that.  You need something really strong to overcome that, I would say.”  A transcript and audio recording of the oral argument can be accessed here.

On the non-textual part of the argument, however, Justice Kagan hinted at a potential acceptance of the larger policy issue that petitioners were trying to make when she questioned Santander’s counsel:

And then your client purchased the debt and all of a sudden is not a debt collector.  And I guess the question is:  What happened in between the time when your client serviced the debt and the time when your client purchased the debt that in any way changed its relationship with the borrower such that Congress wouldn’t be concerned any longer with its behavior?

Picking up on this, in his reserved time, Henson’ s counsel argued this policy point explicitly stating that the “[l]ast point I would like to make is their interpretation allows quite easy evasion, even by third-party debt collectors who we know Congress wanted to get at.”

Financial services companies should watch the outcome of this case closely, given that this case could potentially expand the regulatory scheme under which that they operate, with the attendant costs and burdens that implies.  If the FDCPA were to apply to companies as to debts they owned, the types of institutions at risk for FDCPA suits would expand significantly.  However, given the wording of the statute, and the Justices’ reactions to the petitioner’s interpretation of the phrase “owed or due,” it is not clear that the petitioner will be able to overcome the common reading of the text and expand the FDCPA’s reach.