Argument analysis: Court dubious about reading Fair Debt Collection Practices Act to reach debt buyers

The bench was relatively quiet for yesterday morning’s argument in Henson v. Santander Consumer USA, allowing counsel on both sides to talk for long periods without interruption, suggesting if anything that the justices see a straightforward answer in the text of the governing statute. Justices Anthony Kennedy and Neil Gorsuch said not a word, and even Justice Ruth Bader Ginsburg – who so commonly opens the questioning in the first minutes of the argument – held her peace until almost the middle of the hour.

The case presents a basic question under the Fair Debt Collection Practices Act: whether the statute applies to the recently emerging industry of “debt buyers,” large entities that purchase the debts they collect instead of limiting themselves to providing collection services to the lenders that originated the defaulted obligations. The dispute turns on the FDCPA’s strange choice to regulate debt collection, but only by debt collectors, not the originators of the debt. Sensibly or not, Congress decided that federal supervision was appropriate not for original lenders, but only for third-party collectors, which may be less likely to have an ongoing relationship with the debtor.

This case involves neither of those groups, but rather an entity that (at least for the customers involved here) neither originates debts nor collects them for a third party – Santander Consumer USA (a subsidiary of the major Spanish banking group Banco Santander). In this case, Santander purchased a portfolio of automobile loans originated by a subsidiary of CitiBank, including loans made to the petitioners, Ricky Henson and a group of other individuals.

The key phrase in the statute defines a debt collector as “any person who regularly collects … debts owed or due … another.” Santander (represented by Kannon Shanmugam) argues that because it has purchased the debts they are no longer “owed or due … another.” The borrowers, on the other hand, argue that a debt is “owed” to the entity that originated it (CitiFinancial) but “due” to the person that has acquired it. Accordingly, they say, loans held by a debt buyer are not “due and owing” to the debt buyer, because they are still “owed” to the original lender (CitiFinancial).

During the argument, the justices motivated to speak at length seemed to find the borrowers’ reading quite difficult to accept. Justice Samuel Alito, for example, commented to Kevin Russell (representing the borrowers) that his reading of the statute is just “not the first way you’d read that. It’s not the fiftieth way you would read that. It’s just that – you’re fighting – you’re really going uphill on that. You need something really strong to overcome that, I would say.”

Trying a less confrontational tack, Justice Elena Kagan asked Russell, “if you just look at the language, … can you come up with any sentence [that] points toward your reading rather than towards Mr. Shanmugam’s?” She went on to elaborate:

[U]sually when we think about ambiguous phrases, … we can say [that] you could say this sentence and then [the phrase] would mean X. Or you could say this sentence and then [the phrase] would mean Y. But my problem when I think about this word is that I can never get it to mean what you want it to mean, no matter how I construct a sentence.

The quiescence of the bench did not seem to suggest a lack of engagement with the issues. Several of the justices asked both Russell and Shanmugam a fair number of questions about how well their readings of this core provision could be reconciled with the various exceptions and qualifications that surround it in the FDCPA. In truth, though, that discussion seemed desultory, as none of the justices seemed to think that any of the arguments about the exceptions were sufficiently pointed to weigh strongly in either direction.

The most successful point for the borrowers was the apparent oddity of drawing a line between debt collectors and debt buyers. Kagan, for example, commented to Shanmugam that the line he is asking the justices to draw

doesn’t make much sense, though, does it? I mean, take this very case. So your clients serviced this debt and counted as a debt collector at that time. And then your client purchased the debt and all of a sudden is not a debt collector. And I guess the question is: What happened in between the time when your client serviced the debt and the time when your client purchased the debt that in any way changed its relationship with the borrower such that Congress wouldn’t be concerned any longer with its behavior?

Chief Justice John Roberts pointed out one explanation for that situation near the end of Russell’s presentation, observing that “this particular context, with this particular type of entity, is not what Congress had before it when it passed the law. … The industry has evolved in a way that has raised these sorts of questions. This is not something that Congress was addressing.”

My preview suggested that the borrowers in this case would have to persuade the justices that it is so important to bring debt buyers under the aegis of FDCPA debt-collector rules that the court should overlook the challenge posed by the statutory text. The argument suggests that the borrowers may not be successful in overcoming that obstacle.

[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, is among the counsel to the petitioner in this case. The author of this post, however, is not affiliated with the firm.]

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