On June 12, 2017, the United States Supreme Court decided a case captioned Henson v. Santander Consumer USA, Inc., No. 16-349. In an opinion authored by newly-appointed Justice Neil Gorsuch and hailed by the financial services industry, the unanimous Court held that a company may collect debts that it purchased for its own account without implicating the statutory definition of “debt collector” set forth in the federal Fair Debt Collection Practices Act (“FDCPA”).
The FDCPA authorizes private lawsuits and heavy fines in order to deter improper collection practices by “debt collectors.” In their complaint, Plaintiffs alleged that they and the punitive class that they sought to represent had obtained motor vehicle loans from CityFinancial Auto. At some point after receiving their loans, each of the Plaintiffs defaulted, and CityFinancial subsequently repossessed the automobiles. After CityFinancial subsequently sold the Plaintiffs’ vehicles, a deficiency was left on each of the Plaintiffs’ accounts. Santander Consumer USA, Inc. purchased the Plaintiffs’ accounts from CityFinancial, and Santander then began trying to collect the deficiency amounts.
Plaintiffs’ lawsuit alleged that Santander’s collection efforts violated the FDCPA. Santander moved to dismiss the Complaint on the grounds that it could not have violated the statute because it was not a “debt collector,” and instead was simply a creditor collecting on its own account.
In his opinion, Justice Gorsuch noted that the FDCPA’s definition of “debt collector” encompassed anyone who “regularly collects or attempts to collect…debts owed or due . . . .another.” 15 U.S.C. § 1692a(6). The Supreme Court held that this definition focuses on third-party collection agents, and not on debt owners seeking to collect debts for themselves. In so ruling, the Supreme Court rejected Plaintiffs’ argument that the statutory definition excluded loan originators but nonetheless embraced debt purchasers. Emphasizing the plain language of the statutory definition, the Court also rejected Plaintiffs’ argument that their position was more in line with the spirit of the FDCPA.
It remains to be seen how the Santander decision will affect efforts by the Consumer Financial Protection Bureau (“CFPB”), the Federal Trade Commission (“FTC”) and various state enforcement agencies in their efforts to bring enforcement actions against debt owners in the future. Fitch Law Partners LLP will continue to monitor developments on this subject.