With its rhythmic, alliterative opening line (“disruptive dinnertime calls, downright deceipt…”), Judge Gorsuch’s debut Supreme Court opinion in Henson v. Santander Consumer USA, Inc., 582 U.S. ___ (2017), tackles the decidedly unsexy Fair Debt Collection Act (FDCPA or the Act) – scourge of the creditor and cash cow to enterprising plaintiffs who love the strict liability Act for its penalties and attorneys’ fees provisions.
The plaintiffs sued the defendant, who purchased an auto finance company’s debt, in a Maryland federal court complaining of strong-armed collection tactics that violate the FDCPA. The district court dismissed the plaintiffs’ claims on defendants’ 12(b)(6) motion finding the defendant wasn’t a debt collector under the Act and the Fourth Circuit Appeals Court affirmed.
The case question: Is a company that buys defaulted debt from another more like a debt collector under the FDCPA (in which case the Act applies) or a debt originator (in which it doesn’t)?
The Answer: the latter. The debt buyer trying to collect on its own behalf is not a debt collector under the Act.
The FDCPA allows private lawsuits, statutory penalties and attorneys’ fees against wayward debt collectors.
A debt collector under the Act is anyone who “regularly collects or attempts to collect…debts owed or due…another.” 15 U.S.C. s. 1692a(6).
The Court started its analysis by offering as the archetypal debt collector – the repo man. Everyone agrees the repo man’s business is collecting another’s debts. For the repo man’s polar opposite, the Court pointed to a loan originator as clearly not a debt collector. The defendant fell somewhere in the middle. The question was whether it more like a repo man or a debt originator.
The plaintiffs claimed that since FDCPA Section 1692 uses the past-tense “owed,” the Act applies to purchased debt. After all, according to plaintiffs, they owed a debt to the original auto finance company – clearly “another” entity. As a result, defendants were trying to collect a debt owed “another” – the finance company who sold plaintiffs’ debt.
For its part, the defendant asserted that because it only sought to collect its own debts, it wasn’t an FDCPA debt collector.
The Court agreed with the defendant and rejected plaintiff’s argument as textual hairsplitting. By its plain terms, the Act aims to protect consumers from abusive tactics of “third party collection agents working for a debt owner – not on a debt owner seeking to collect debts for itself.” (p. 3)
For support, the Court noted that various FDCPA sections distinguish between debt originators, debt owners and debt collectors. See ss. 1692a(4), 1692a(6). The Act also differentiates between “original” and “current” creditors. s. 1692g(a)(5). Yet the Act is silent on any differences between originators and current debt owners in its debt collector definition.
And while someone can’t simultaneously be a creditor and debt collector, the Act doesn’t prevent a debt buyer like defendant from being a creditor where it tries to collect that debt on its own account. (p. 8).
The Court also rejected plaintiffs’ policy argument – that applying the FDCPA to defendant would further the Act’s goal of debt collectors treating consumers well. Plaintiffs continued that had Congress realized how the debt buying business would mushroom, it would have treated defaulted debt buyers the same as independent debt collectors when drafting the Act. (p. 9).
The Court viewed this as “quite a lot of speculation” and left it up to Congress to modify the Act if and when it decides to treat debt buyers as debt collectors.
Take-aways: Debt buyers who try to collect on their own account are not debt collectors under the FDCPA.
It remains to be seen whether Congress expands the Act’s coverage to defaulted debt purchasers like the Henson defendant. Hopefully not.