Is a company that regularly buys defaulted consumer debts and then attempts to collect the debts in its own name a debt collector? One part of 15 U.S.C. §1692a(6) defines "debt collector" for the Fair Debt Collection Practices Act, while another part offers an exclusion from that definition. The interaction between the definition and the exclusion was the focus of Supreme Court oral arguments in Henson v. Santander Consumer USA, Inc., and, judging by the Justices’ questioning, the debt buyer has the better side of the argument.
A significant difficulty was presented by changes in the debt collection industry since the FDCPA was enacted in 1977. Everyone appeared to accept that modern debt-buying practices were not envisioned by Congress 40 years ago.
FDCPA claims. The attempted class action was filed by four consumers who had defaulted on automobile loans made to them by CitiFinancial Auto. The consumers claimed Santander Consumer USA first was hired to collect the loans for CitiFinancial and that later the delinquent loans were included in a bundle of loans sold to Santander for collection. The consumers did not claim that debt collection was the principal purpose of Santander’s business, but they did claim that it regularly buys and attempts to collect defaulted debts.
Alleging that Santander engaged in conduct that violated the FDCPA after it bought the loans, the consumers sued. They based their claim that Santander was a debt collector under the act on the fact that the loans were in default when they were purchased.
Claims rejected. The U.S. Court of Appeals for the Fourth Circuit rejected the consumers’ arguments. Whether the company was a debt collector depended on who owned the debts at the time of the company’s collection efforts, the appellate court said. Whether the debts were in default when they were purchased, and who originated the loans, both were irrelevant (Henson v. Santander Consumer USA, Inc., discussed at Banking and Finance Law Daily, March 24, 2016).
Petition for certiorari. The consumers’ petition noted that "debt collector" is defined in part as anyone who regularly attempts to collect debts owed to someone else. It excludes from that definition anyone who is collecting a debt that was "not in default at the time it was obtained by such person" (15 U.S.C. §1692a(6)(F)(iii)). According to the consumers, if a person collecting a debt that was not in default when it was purchased is not a debt collector, than a person collecting a debt that was in default is a debt collector.
Consumers’ argument. Arguing for the consumers, Kevin K. Russell seemed to switch the emphasis to the exclusion from the definition of "debt collector" for companies that had obtained a debt as a secured party in a commercial transaction with the creditor (15 U.S.C. §1692a(6)(F)(iv)). This seemed to be a better description of Santander’s position in the transaction. Russell seemed to say that 15 U.S.C. §1692a(6)(F)(iii), the focus in the lower courts, applied only to mortgage loan servicers.
Russell attempted to convince the Court that the FDCPA’s use of "debts owed or due . . . another" in two different places only made sense if Santander was a debt collector. Otherwise, (iv) would be an exemption that benefitted a group of persons that did not exist. However, his construction required "owed" to be seen as being in the past and "due" as being in the present, a construction that Chief Justice Roberts and Justice Kagan both questioned.
Russell’s argument came down to the assertion that the initial definition and the subsequent exclusion could only both be effective if Santander were a debt collector. Otherwise, there would be "Venn diagrams with circles that do not touch."
Santander’s argument. Kannon K. Shanmugan, Santander’s attorney, opened by attempting to refocus the arguments, saying "The sole question presented by this case is whether an entity that purchases debts and then attempts to collect them for its own account, qualifies as a debt collector under the FDCPA on the ground that it is regularly attempting to collect debts owed or due another." He answered that "sole question" by asserting that such a company would be collecting debts owed to itself and thus would not be a debt collector.
Shanmugam told the court that, contrary to the consumers’ claims, deciding that debt buyers are not debt collectors gives meaning to all of the FDCPA text and also to Congress’s intent. 15 U.S.C. §1692a(6)(F)(iv) describes what is commonly referred to as accounts receivable financing, he told the Court. In such a situation, while the commercial lender has obtained some rights in the debt, the consumer’s debt remains "owed or due" to the original creditor. It was possible the commercial creditor would take collection actions before the consumer defaulted.
As long as the commercial lender—or a debt buyer—has not acquired full ownership of the consumer’s debt it would not be a debt collector, he explained.
Responding to the meaning of the phrase "debts owed or due," Shanmugam said the two words mean essentially the same. They are a doublet, he said, akin to "aid and abet," and do not support the consumers’ position.
To address the policy arguments, Shanmugam attempted to clarify the factual setting for the Court. CitiFinancial had withdrawn from the auto loan business and Santander had purchased essentially all of CitiFinancial’s loans. That meant that Santander had "stepped into Citi’s shoes," and the policy reasons why one might want to treat debt buyers as debt collectors did not apply. Just as any creditor, Santander had an incentive to maintain borrowers’ good will, he asserted.
He went on to add that Santander actually fir the FDCPA definition of "creditor." It was the company to whom the debts were owed and it had not taken an assignment "solely for the purpose of facilitating collection of such debt for another."
The case is Dkt. 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, et al. Kannon K. Shanmugam (Williams & Connolly LLP) for Santander Consumer USA, Inc.
Companies: CitiFinancial Auto; Santander Consumer USA, Inc.
MainStory: TopStory DebtCollection SupremeCtNews
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