Argument preview: Court to consider application of Fair Debt Collection Practices Act to debt buyers
on Apr 11, 2017 at 3:18 pm
Following on the heels of the January argument in Midland Funding v. Johnson, the argument next week in Henson v. Santander Consumer USA brings the court for the second time this term to the Fair Debt Collection Practices Act, universally referred to as the FDCPA. The question is a basic one: whether the statute applies to the relatively recent group of large “debt buyers,” entities that purchase the debts they collect instead of limiting themselves to providing collection services to the lenders that originated the defaulted obligations.
The case turns on the relatively odd policy choice that Congress made when it enacted the FDCPA. The basic plan of the statute is to define a lengthy list of inappropriate collection activities and then to prohibit them, but only when they are engaged in by a “debt collector.” What that means is that Citibank’s activities collecting credit-card debts from its cardholders are wholly unregulated by the FDCPA, but if it hires a third party to collect those same debts, the activities of that third party will be subject to pervasive scrutiny under the FDCPA. As I mentioned above, this case involves a third fact scenario, relatively unusual at the time Congress adopted the statute, that arises when a creditor sells its debts for collection by a completely separate entity.
The case involves a series of car loans that CitiFinancial made to the petitioners, Ricky Henson and a group of other individuals. For a time, the respondent, Santander Consumer USA, serviced those loans for CitiFinancial, but after the borrowers went into default Santander purchased the loans, which it is now attempting to collect on its own account.
The key phrase in the statute defines a debt collector as “any person who regularly collects … debts owed or due … another.” The borrowers argue that a debt is “owed” to the entity that originated it but “due” to the person who has acquired it. Accordingly, they say, loans held by a debt buyer like Santander are not “due and owing” to the debt buyer, because they are still “owed” to the original lender (CitiFinancial, in this case). Santander, by contrast, argues that the debts are “due and owing” to Santander, because Santander has purchased them, and that it therefore is not a debt collector subject to regulation under the FDCPA.
The borrowers acknowledge the “surface appeal” of Santander’s reading of the statutory language. Still, they argue, the language is vague enough to permit extending it to cover debt buyers. The court should want to extend the language to cover debt buyers, the borrowers maintain, because federal regulators and most of the lower courts have read the statute to cover debt buyers for many years, and because the large debt-buying industry did not exist when Congress wrote the FDCPA. The borrowers assert that leaving that industry outside the FDCPA effectively guts the application of the FDCPA to the largest and most prominent current method of debt collection.
The borrowers’ arguments are supported by an amicus brief from more than two dozen states. We will have to wait for the argument to see whether that is enough to overcome the straightforward reading of the statute that Santander offers.
[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, is among the counsel to the petitioners in this case. The author of this post, however, is not affiliated with the firm.]