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U.S. Supreme Court Weakens Consumer Protections From Debt Collectors

By: Michael C. Donio and Ryan S. Hoffman, attorneys at the Law Offices of Hoffman DiMuzio

Many unsuspecting consumers have founds themselves on the wrong end of aggressive, and at times, threatening phone calls from debt collectors. Regularly these calls came at odd hours of the day when the debt collectors knew the consumer was home. Sometimes the person on the other line poses as an attorney or a fraud investigator. Other times the collector will outright threaten the consumer with garnished wages or jail time if they do not pay. These were all standard practices in the debt collection industry.

In response to the overly aggressive tactics of debt collectors, congress enacted the Fair Debt Collection Practices Act (“FDCPA”). The Act prohibits debt collectors from calling at odd hours, making repeated calls in an attempt to harass the consumer, posing as an attorney or law enforcement officer, threatening arrest or legal action, and using abusive and/or profane language. The Act also requires that debt collectors identify themselves, give the name of the original creditor, notify the consumer of their right to dispute the debt, and provide verification of the debt. Since its enactment, the FDCPA had made remarkable strides in curbing the odious behavior that often came with debt collection and provided consumers with a basis to pursue legal remedy if collectors violated their rights.

Unfortunately, in a recent decision by the Supreme Court of the United States, the power and reach of the FDCPA took a tremendous hit. In Henson et. al. v. Santander Consumer USA Inc. the Supreme Court held, in a unanimous decision, that the FDCPA does not apply to a company that purchases a debt for its own account, and then attempts to collect. In Henson, CitiFinancial Auto made car loans to the consumers. The consumers defaulted on the loans. Subsequently, the banking firm Santander purchased the defaulted loans from CitiFinancial Auto and sought to collect on these newly purchased debts. In the process of doing so, Santander attempted to collect in ways which were contravened with the FDCPA. Accordingly, the consumers argued that Santander’s practices violated the FDCPA and sought legal remedies including statutory restitution. Santander did not dispute that they engaged in practices prohibited by the Act; instead, Santander contended that the Act simply did not apply to them.

Under the Fair Debt Collection Practices Act, a “debt collector” is defined as anyone who collects or attempts to collect debts “owed…another.” Both parties agreed that third-party debt collectors (i.e. someone hired by the owner of the debt to collect) clearly fall under the definition of a debt collector. Both parties also agreed that the Act does not apply to a loan originator (i.e. a credit card company, or auto lender) trying to collect a debt. The issue before the Court was whether the Act applies to someone who purchases a debt and then attempts to collect.

Santander argued that it was not a “debt collector” under the Act because they did not collect debts owed to another, but instead collected debts that it had purchased and now own – and thus should be treated as a loan originator collecting on a debt. The consumers argued that the statute’s use of the past participial “owed” demonstrates that the definition applies to any debt that was at any time owed to anyone other than the loan originator. Turns out all of our elementary school English teachers were right when they said this would be useful when we grew up.

Unfortunately for consumers, Justice Neil Gorsuch, penning his first opinion for the Court, rejected the consumers argument pointing out the fact that past participles such as “owed” are used as adjectives to describe the present state of things: “[F]or example, burnt toast is inedible, a fallen branch blocks the path, and (equally) a debt owed to a current owner may be collected by him or her.” According to Justice Gorsuch, the statute speaks “not at all at all about originators and current debt owners but only about whether the defendant seeks to collect on behalf of itself or ‘another.’”

The consumers also argued that Congress never had the chance to consider whether those in the business of purchasing defaulted debt should be considered a “debt collector” under the Act. Though the business of buying debt for pennies on the dollar is billion dollar business in today’s world, the industry did not really come into existence until after the Act was passed in 1977. Therefore, the consumers contended, public policy and the legislative intent of the Act require debt purchasers to be considered “debt collectors.” However, Justice Gorsuch and the rest of the Court were unswayed:

All this seems to us quite a lot of speculation. And while it is of course our job to  apply faithfully the law Congress has written, it is never our job to rewrite a constitutionally valid statutory text under the banner of speculation about what Congress might have done had it faced a question that, on everyone’s account, it never faced.

In other words, the Court decided to exercise judicial restraint and declined to legislate from the bench.

As a result of the Court’s decision, companies who purchase debt will no longer be required to comply with the Fair Debt Collection Practices Act. This leaves the door open for the old practices that the Act sought to prevent: threatening phone calls at odd hours, debt collectors posing as law enforcement or attorneys, threats of imprisonment, and more. However, the Court pointed out that their decision did not address two important issues. First, companies that seek to collect debts that they have purchased, such as Santander, also routinely act as a third party collection agents. Second, the FDCPA also defines a “debt collector” as one who is engaged in “any business the principal purpose of which is the collection of any debts.” 15 U.S.C.A. § 1692a(6). This leaves open the possibility that the FDCPA may still apply to these companies who purchase debt, but who ultimately may fall into these other regulations. Only time, and the lawyers fighting for consumers, will be able to tell.

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