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So Who Really Is A ‘Debt Collector’ Under the FDCPA?

June 13, 2017Alerts Financial Services Industry Alert

When the Fair Debt Collection Practices Act became law in 1977, it promised to regulate the conduct of anyone who “regularly collects or attempts to collect … debts owed or due … another.”

But the courts have divided over an important question about the scope of the law. The split among the federal circuit courts hinges on whether an entity that purchases debt and attempts to collect that debt for itself is a debt collector subject to the FDCPA.

Now the U.S. Supreme Court has resolved the conflict with its June 12, 2017, opinion in Henson, et al. v. Santander Consumer USA, Inc.

Affirming a decision of the Fourth Circuit Court of Appeals, the Court held that an entity that purchases debt for its own account is a creditor – not a debt collector – under the FDCPA. As a result, that entity is not required to comply with the conduct proscribed by the FDCPA because it did not regularly attempt to collect debts “owed … another.”

In Henson, the Court noted that Santander purchased defaulted debt from CitiFinancial and proceeded to attempt to collect that debt for itself, not CitiFinancial or anyone else. Nevertheless, Henson claimed that Santander was still a debt collector and violated the obligations of a debt collector under the FDCPA. The Supreme Court (in the first decision authored by Justice Gorsuch) unanimously rejected Henson’s arguments.

First, Henson proffered a creative, grammatical analysis to claim that the language “owed … another” actually meant previously owed another and subject to the FDCPA. Second, Henson argued that the definition of debt collector must also include those who attempt to collect a debt obtained after default. The Court in Henson rejected both arguments through a statutory analysis.

Stated simply, the Henson Court concluded that the FDCPA clearly defined who acts as a debt collector and that any expanded definition would have to be addressed by Congress, not the courts. In doing so, the Court rejected Henson’s policy argument that it would be consistent with the objective of the FDCPA to include an entity that purchased defaulted debt to collect on its own account into the definition of a debt collector.

The Henson decision could have lasting impact on FDCPA jurisprudence. It suggests a path for debt collectors to avoid the statutory mandates of the FDCPA. Rather than collect a debt for another entity for a fee and be subject to the FDCPA, a debt collector could, instead, purchase the debt at a discount from its customer and take the risk of attempting to collect the full amount of the debt from the debtor, but now on its own account. It remains to be seen if doing so avoids FDCPA oversight, but it is easy to see that this business model will be tested going forward in light of this decision.

If you have any questions about this alert, please contact Joshua Horn at [email protected] or 215.299.2184 or any of the members of Fox Rothschild's Financial Services Industry Practice Group. Joshua regularly represents financial service providers in matters involving the Fair Debt Collection Practices Act and the Fair Credit Reporting Act.