Here we are nearing the end of another U.S. Supreme Court term, and it has been a busy one in the creditors’ rights arena – and a particularly good one for debt buyers. Yesterday (June 12, 2017), the Supreme Court issued its second Fair Debt Collection Practices Act (FDCPA) decision of the term: Henson v. Santander Consumer USA Inc. (See our previous blog post about this case after the Fourth Circuit ruled on it in 2016.)
The Supreme Court’s opinion is noteworthy as the first opinion from the newest member of the court, Justice Neil Gorsuch, and for its opening alliterative lines:
“Disruptive dinnertime calls, downright deceit, and more besides drew Congress’s eye to the debt collection industry. From that scrutiny emerged the Fair Debt Collection Practices Act …”
But most memorable for debt buyers is the ruling that the FDCPA does not apply to companies that purchase debt from others and then collect that debt on their own behalf.
CitiFinancial Auto (Citi) originated car loans to consumers. When the consumers defaulted, Citi repossessed and sold the vehicles, leaving deficiency balances. Citi then bundled those loans and sold some $3.5 billion of them to Santander, a consumer finance company. The plaintiffs filed a class action against Santander claiming that it violated the FDCPA by taking inappropriate actions to collect the debt, including alleged misrepresentations to consumers. The trial court dismissed on the ground that the FDCPA did not apply to Santander’s actions, and the Fourth Circuit affirmed. The Supreme Court agreed to hear the case because of a split among the circuit courts.
In a unanimous decision, the Supreme Court agreed with the Fourth Circuit. The key issue was whether Santander was a “debt collector” and therefore subject to the restrictions of the FDCPA. In particular, the FDCPA provides that a debt collector includes a person who collects debts “owed … another.” Plaintiffs argued that Santander fit this definition because it purchased the loans after they had already defaulted and because the debts were originally “owed” to Citi. The Supreme Court disagreed and Justice Gorsuch ran through a comprehensive English and grammar lesson as to why the phrase “owed … another” did not include debt buyers collecting debt for their own benefit, as opposed to those collecting the debts on behalf of another person.
The plaintiffs also made a policy argument and asked the court to interpret the FDCPA in light of Congress’ goal of making sure that debt collectors “treat consumers well.” The court wisely rejected this invitation and held that it was limited by the plain language of the statute: “[W]e will not presume with petitioners that any result consistent with their account of the statute’s overarching goal must be the law but will presume more modestly instead that the legislature says what it means and means what is says.”
- The court’s ruling is good news for debt buyers. But such buyers should keep in mind that there are plenty of state consumer protection statutes out there that may nevertheless apply, such as the North Carolina Fair Debt Collection Practices Act. Therefore, the best practice is to still conduct collection activities in a way that would satisfy the FDCPA if it otherwise applied.
- From a purely literary perspective, Justice Gorsuch has big shoes to fill in replacing Justice Scalia. Based upon this first opinion, the public may be in for some fun, and one hopes that Gorsuch’s alliterative opening is a positive sign for entertaining writing to come.