In Henson v. Santander Consumer USA, Inc., the United States Supreme Court was asked to decide whether a company that purchased defaulted debt from the originator, and that the company intended to hold and collect, is a debt collector pursuant to the Fair Debt Collection Practices Act (FDCPA). The FDCPA defines “debt collector” as “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” See 15 U.S.C. § 1642a(6).
Prior to the Supreme Court’s ruling, a split existed amongst the circuits. Some, like the Fourth Circuit that decided Henson before the Supreme Court, held that a company such as Santander did not qualify as a debt collector because it did not regularly seek to collect debts owed another. Others, such as the Seventh Circuit, held that Santander would be a debt collector because the definition of “creditor” excludes one who receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another. See 15 U.S.C. § 1642a(4). Fortunately for creditors, the Supreme Court sided with the Fourth Circuit.
In writing for a unanimous court, Justice Gorsuch focused on the “owed . . . another” language of the statute. “After all, the Act defines debt collectors to include those who regularly seek to collect debts ‘owed . . . another.’ And by its plain terms this language seems to focus our attention on third party collection agents working for a debt owner—not a debt owner seeking to collect debts for itself.” Justice Gorsuch continued, “Neither does this language appear to suggest that we should care how a debt owner came to be a debt owner—whether the owner originated the debt or came by it only through a later purchase.”
The opinion also focuses on the very cause of the split between circuits—the exclusion of defaulted debt from the definition of “creditor.” Again, Justice Gorsuch focused on the language stating that the defaulted debt is assigned or transferred “‘solely for the purpose of facilitating collection of such debt for another.’” Thus, if a company purchases debt, even defaulted debt, on its own account and works to collect that debt, it is a creditor and not a debt collector for FDCPA purposes.
This holding will benefit creditors who buy debt, including defaulted debt, and who found themselves subject to the FDCPA before this opinion. Such creditors will be exempt from the FDCPA because the statute applies only to debt collectors. This does not give creditors a free pass, however. State and federal laws regarding unfair, deceptive, or abusive acts or practices still remain on the books and often apply to both creditors and debt collectors alike. However, the Supreme Court’s common-sense holding should provide regulatory relief to a number of creditors that did not originate the debt that they own.