U.S. Supreme Court Holds Debt Purchaser Collecting Its Own Debt Is Not Subject to FDCPA

For a PDF of this decision click download here: Henson v. Santander SCOTUS 2017

The issue before the Court was whether a purchaser of defaulted debt meets the FDCPA’s definition of a “debt collector” as one who “regularly collects or attempts to collect . . . debts owed or due . . . another.” 15 U. S. C. §1692a(6).

In this case, Santander Consumer USA Inc. acquired defaulted loans from CitiFinancial Auto and then began to collect on those loans. The petitioners argued this activity made Santander a debt collector subject to the FDCPA.  The Fourth Circuit Court of Appeals disagreed because the debt purchaser was not seeking to collect a debt “owed . . . another.” The Supreme Court affirmed in a unanimous decision.

This was a huge win for the credit collection industry who can now claim they purchased the debt in order to circumvent being called a third party debt collector and to defeat FDCPA protections.

The  Supreme Court’s decision today may noticeably reduce consumer litigation against businesses operating in the consumer finance and debt collection industry and it may impact debt collection regulation and enforcement at the state level.

The primary issue in Henson was whether a company that regularly attempts to collect debts it purchased after the debts had fallen into default is a debt collector covered by the FDCPA.  The high court said “no,” concluding that a company may collect debts that it purchased for its own account without triggering the FDCPA.

The Henson consumers filed a class action against Santander, alleging that it violated the FDCPA by engaging in abusive, harassing and deceptive attempts to collect the defaulted debts.  The consumers alleged that Santander was a consumer finance company that acquired defaulted debt for a “few cents on the dollar” and, therefore, was a “debt collector” under the FDCPA.  Santander moved to dismiss the consumers’ complaint on the basis that Santander did not meet the definition of “debt collector” under the FDCPA.  On appeal, the Fourth Circuit held that the consumers had not alleged that Santander was acting as a debt collector under the FDCPA.  Because the consumers alleged that Santander purchased and, thus, owned the debt, Santander was not collecting on behalf of another, and the FDCPA does not apply to creditors who collect debts on their own accounts.

This decision may not have many teeth though if consumers and their attorneys demand actual proof that the creditor purchased the debt and has the records to prove it.  In most of these cases the original creditor failed to keep records, quickly securitized the debt and failed to retain the contract with a wet-ink signature as required by law.

The opinion did not consider whether a purchaser of defaulted debt is engaged “in any business the principal purpose of which is the collection of any debts.” §1692a(6).

A copy of the decision in Henson v. Santander Consumer USA Inc. is available here.

5 Responses

  1. Selling of a debt is an actionable claim. It is a settled position in law that buyer of an actionable claim cannot recover from the debtor more than what the buyer has paid, for acquisition of the debt as it otherwise lead to unjust enrichment.

    Debt buyers are not entitled to recover anything more than what the debt buyer had paid to the original creditor. This is logic and meet to commonsense which is basis of law.

  2. ANON-
    Well said. Furthermore, most debt collectors tell the person from whom they are trying to collect the debt that they, the debt collector, is collecting the debt on behalf of someone else. They can’t have it both ways-
    If they , the debt collectors, are purporting to be collecting on behalf of a third party, then they are debt collectors.

  3. Reblogged this on California freelance paralegal and commented:
    This decision is bad news. Congress should revise the FDCPA to state that any entity that has purchased defaulted debt shall be considered a debt collector under the FDCPA. I agree that everyone should demand proof of payment for the debt in discovery if they are sued.

  4. Demanding proof of payment for the debt, is paramount.

    If the debt was purchased for pennies-on-the-dollar, then the injury is reduced to the amount paid by the debt-buyer, unless the debt is a secured debt. (and, even a secured debt can be challenged in bankruptcy)

  5. So the case was decided on “participles” — “owed to and owing to.” The term “account” is not defined. Purchasing debt after charge-off (which is usually 180 days) defines an account. Because after charge-off there is no balance sheet account. Anything collected is treated as income – not as an adjustment to a balance sheet financial asset account. This means the original account no longer exists as it was not sold in the same capacity as originated. The debt buyer does not stand in the shoes of the original creditor as the nature and structure of the debt has changed. What does that mean under the FDCPA? It is not addressed in the decision. Time to go back to congress, and hopefully the short statute of limitations – one year – can also be revisited.

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