The United States Supreme Court, in a 13-page unanimous decision written by newly minted Justice Gorsuch, affirmed the United States Court of Appeals decision and clarified today the issue of who qualifies as a “debt collector” subject to the Fair Debt Collection Practices Act’s scrutiny. See Henson v. Santander Consumer USA, Inc., ____U.S.___, 2017 U.S. LEXIS 3722 (June 12, 2017). The issue is extremely important for individuals and entities that purchase debts. For example, what if you purchase the debt and then try to collect it? Does that make you a debt collector subject to the scope of the statute?
The Supreme Court’s decision centered around the language of 15 U.S.C. 1692a(6) which states that the term “debt collector” is defined as anyone who “regularly collects or attempts to collect …debts owed or due…another.” Santander did not originate the debt at issue before the Court. The debt in the case before the court had been originated by CitiFinancial and then Santander purchased the defaulted loans and Santander was trying to collect on the loans. Both parties acknowledged, and the Court pointed out that both sides agreed, at least partially, on many issues. The real remaining issue in the dispute was “how to classify individuals and entities who regularly purchase debts originated by someone else and they then try and collect on those debts for their own account.”
The United States Supreme Court held that a company may collect debts that it purchased for its own account, like Santander did, without triggering the statutory definition of debt collector and subjecting them to liability under the Fair Debt Collection Practices Act (“FDCPA”). The FDCPA definition of debt collector at 15 U.S.C. 1692a(6) focuses on third party collection agents regularly collecting for a debt owner-not a debt owner seeking to collect for itself. More importantly, the Supreme Court made clear that the key point is that to be a debt collector under this section of the FDCPA, you must attempt to collect debts owed another before you ever qualify as a debt collector.
The ruling by the United States Supreme Court resolves a split in the circuit courts on this issue as it relates to debt purchasers. Be careful. The ruling expressly did not reach the issue of whether debt collector status may be afforded a third party collection agent for debts owed to others or the use of other definitions of the term “debt collector” such as those engaged “in any business the principal purpose of which is the collection of any debts” because these issues were not before the court. For lawyers in various states that have state versions of debt collection practice acts modeled on the FDCPA, like Chapter 392 of the Finance Code in Texas, where the definition of “Third-Party Debt Collector” specifically incorporates 15 U.S.C. 1692a(6) that was before the court, it is only a matter of time where the ruling of the United States Supreme Court in Henson is extended to various state court challenges to the scope of the state debt collection practices act.
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