In Unanimous Decision, SCOTUS Shields Debt Buyers From Reach of FDCPA But Important Questions Still Remain

Just two months after hearing argument in Henson v. Santander Consumer USA, Inc., the Supreme Court declined the opportunity to expand the Fair Debt Collection Practices Act ("FDCPA") to debt buyers. In an earlier blog post, we noted the potential impact this case may have on the regulation (and marketplace as a whole) of companies that seek to collect defaulted accounts purchased from originating lenders. In his first opinion as a member of the Supreme Court, Justice Neil Gorsuch penned an 11-page decision, affirming the Fourth Circuit's finding that Santander Consumer USA, Inc. ("Santander") did not constitute a "debt collector" under the relevant portion of the FDCPA's definition.

As expected following oral argument, the Court devoted a significant portion of the opinion to statutory interpretation. The plain meaning of the definition establishes that if companies are not collecting debts that are "owed . . . another," they avoid the group of companies regulated by the FDCPA. Indeed, as the Court stated, "all that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for 'another.'"

From there, the opinion rejects the policy argument that if Congress had known of the debt purchasing industry, it certainly would have regulated them in a similar fashion. The Court noted that there may well be an opportunity down the road for Congress to determine whether it should "reenter the field" to evaluate and amend its regulation of the current debt collection industry. Taking a very traditional approach, the Court held such policy questions on the reach of the FDCPA are simply not for the courts to resolve.

While the decision is favorable to consumer finance companies, there is still some concern for companies that routinely devote all of their business to collecting debts purchased from originating lenders. Importantly, the Court limited the decision to a certain part of the FDCPA's definition of debt collector even though the definition is generally construed to include three separate parts. Under the FDCPA, the term debt collector means: "(1) a person whose principal purpose is to collect debts; (2) a person who regularly collects debts owed to another; or (3) a person who collects its own debts, using a name other than its own as if it were a debt collector." Henson v. Santander Consumer USA, Inc., 817 F.3d 131, 136 (4th Cir. 2016). The first part of the definition did not apply because Santander is a consumer finance company and not in the "principal" business of debt collection. Thus, the Court was only tasked with determining whether Santander constituted a "debt collector" for purposes of the second part of the definition. 

As a result, despite that portion of the Court's holding that the FDCPA does not apply to debt buyers, a debt purchaser could still be vulnerable under the FDCPA if, for instance, its primary business is collecting debts. All companies should evaluate their business models to determine whether they may still fall under the purview of the FDCPA in the post-Henson marketplace. At the very least, companies should be prepared for a push in litigation moving forward asserting that debt purchasers fall within the first part of the definition.

A full copy of the decision in Henson can be found here.