A unanimous United States Supreme Court ruled today that purchasers of defaulted debt are not considered debt collectors by at least one definition found in the Fair Debt Collection Practices Act (“FDCPA”) and therefore are not necessarily subject to its restrictions, even though they are not the originator of the debt and intend to collect on it.
The case arose in the Fourth Circuit Court of Appeals and concerned the alleged improper debt collection practices of Santander Consumer USA Inc. against Ricky Henson. Henson purchased an automobile through a loan originated by CitiFinancial Auto. Henson subsequently defaulted on the terms of the loan and the defaulted loan was purchased by Santander. Santander subsequently engaged in collection activity giving rise to the present litigation.
The FDCPA outlines a number of restrictions on the practices debt collectors may use in the collection of debt and backs them up with stiff penalties. The Act includes as one definition of debt collector, a person “who regularly collects or attempts to collect … debts owed or due or asserted to be owed or due another.” 15 USC 1692a(6). It was this definition of debt collector that was alleged to cover Santander in this litigation and it is frequently the basis of similar litigation. Lower courts had previously held that a business who purchased a debt that was in default at the time of purchase were included under this definition of debt collector, however the Fourth Circuit Court of Appeals sided with Santander in the appealed decision.
Henson’s primary argument was that the word “owed” implied that the definition of debt collector included subsequent purchasers because the past tense form of the word implied there was a prior owner of the debt. Henson further argued that the debt purchasing market was not developed at the time of the passage of the FDCPA and therefore Congress would have more explicitly included subsequent purchasers of debt in the statute had they known how the debt market would evolve. Santander successfully argued that if the business owned the debt, it could not be “owed or due another” and therefore the business is not a debt collector under this definition.
The Supreme Court unanimously agreed with Santander and the Fourth Circuit and held that as the statutory language was clear, there was no need to use arcane grammatical analysis to interpret its words or to rewrite the plain language of the statute to better fulfill its stated purpose. Therefore, the purchase of defaulted debt by a business does not trigger the “regularly collects or attempts to collect … debts owed or due another” definition of a debt collector.
The Supreme Court did not however address the other definition of debt collector in its ruling, that of a business “the principal purpose of which is the collection of any debts.” 15 USC 1692a(6). Therefore, entities whose sole or primary purpose is the purchase and collection of debts may still potentially fall under the definition of debt collector and this will likely be a source of litigation in the future.
The text of the ruling may be found here: https://www.supremecourt.gov/opinions/16pdf/16-349_c07d.pdf