Banking and Finance Law Daily Court to decide if debt buyer is debt collector
Friday, January 13, 2017

Court to decide if debt buyer is debt collector

By Richard A. Roth, J.D.

The Supreme Court has granted a request that it decide whether a consumer finance company that was collecting bad debts it bought from the original lender was a debt collector that was subject to the requirements of the Fair Debt Collection Practices Act. According to the U.S. Court of Appeals for the Fourth Circuit, whether the company was a debt collector depended on who owned the debts at the time of the company’s collection efforts. Whether the debts were in default when they were purchased was irrelevant (Henson v. Santander Consumer USA, Inc.).

According to the Fourth Circuit, the class action was filed by consumers who had defaulted on automobile loans. After the default, the loans were assigned to Santander Consumer USA for collection.

Santander is a consumer finance company, the court noted, and there was no claim that debt collection is its principal business. However, the consumers asserted that the company was a debt collector because it purchased loans that already were in default.

Creditor v. debt collector. The FDCPA uses a two-step process to decide whether a company is a debt collector, the Fourth Circuit said. As laid out by 15 U.S.C. §1692a(6), the first step is to determine whether the company fits under the general definition of "debt collector." If it does, the second step is to determine whether the company is covered by an exemption.

General definition. A company fits the definition of debt collector if it satisfies one of three tests:

  1. its principal purpose is collecting debts;
  2. it regularly collects debts owed to another person; or
  3. it uses a different name when collecting debts owed to itself.

The consumers did not claim that Santander met the first or third criteria, the appellate court said, so only the second mattered. Since the consumers’ complaint alleged that the improper collection tactics happened after Santander bought the debts, the company would not have been collecting debts owed to another person. Thus, it could not have been a debt collector.

Debt in default. The consumers’ argument that Santander was a debt collector because it bought debts that were in default was rejected. One of the exclusions from the definition of "debt collector" applies to a person collecting a debt owed to someone else if the debt was not in default at the time it was obtained for collection. According to the court, the consumers based their argument on a "negative pregnant"—if a person collecting a debt that was not in default when it was purchased was not a debt collector, then a person collecting a debt that was in default when it was purchased must be a debt collector.

The problem with that argument, the court said, was that the exclusion was simply that—an exclusion. It did not add anyone to the general definition.

The case is No. 16-349.

Supreme Court docket. For details about this and other petitions and cases pending before the Supreme Court, please consult this list of selected banking and finance law cases awaiting action in the 2016 term. Issued opinions, granted petitions, pending petitions, and denied petitions are listed separately, along with a summary of the questions presented and the current status of each case.

Attorneys: Kevin K. Russell (Goldstein & Russell, P.C.) for Ricky Henson, Ian Matthew Glover, Karen Pacouloute, and Paulette Hou. Matthew Allen Fitzgerald (McGuireWoods LLP) for Santander Consumer USA, Inc. Julie Nepvue for amicus curiae AARP Foundation Litigation. Joseph S. Mack and Catherine Gonzalez for amicus curiae Civil Justice, Inc. Brian E. Frosh for amici curiae Attorney General of Maryland, Civil Justice, Inc., Maryland Consumer Rights Coalition, Inc., National Association of Consumer Advocates, National Consumer Law Center, and Public Justice Center, Inc.

Companies: Santander Consumer USA, Inc.

MainStory: TopStory DebtCollection SupremeCtNews

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