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SCOTUS’s FDCPA Opinion in Henson v. Santander: It’s Not Debt Collection When You Own It

Yesterday, the Supreme Court of the United States issued its opinion in Henson v. Santander Consumer USA, Inc.—Justice Gorsuch’s first as a Supreme Court Justice. The question presented was whether “individuals and entities who regularly purchase debts originated by someone else and then seek to collect those debts for their own account” fall under the Fair Debt Collection Practices Act’s definition of “debt collector”. As the Court put it, “[d]oes the [FDCPA] treat the debt purchaser in that scenario more like the repo man or the loan originator?” Henson v. Santander Consumer USA, Inc., 582 U.S. ____ (2017), slip op. at p. 2. In a landmark decision, the Supreme Court held such debt purchasers fell outside the scope of the FDCPA.
In analyzing just how the Supreme Court answered these questions, it is helpful to start with the lower courts, where petitioners premised their arguments that Santander qualified as a debt collector on the assertion that the FDCPA’s defined terms “debt collector”  and “creditor” are mutually exclusive. Henson v. Santander, 817 F.3d 131, 135 (4th Cir. 2016). Under the FDCPA a “debt collector” is anyone who “regularly collects or attempts to collect . . . debts owed or due  . . . another.” 15 U.S.C. § 1692a(6). And relevant here, the definition of “creditor” specifically excludes anyone who “receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.” 15 U.S.C. § 1692a(6). “Because Santander fits, [petitioners] argue[d], the exclusion from the definition of 'creditor,' it must therefore be a 'debt collector.'" Henson, 817 F.3d at 135. When framed this way, “the default status of debt determines whether a purchaser of debt . . . is a debt collector or a creditor.” Id. However, the Fourth Circuit disagreed on all counts. 
Starting with the text of the FDCPA itself, the Fourth Circuit summarized the definition of debt collector as “(1) a person whose principal purpose is to collect debts; (2) a person who regularly collects debts owed to another; or (3) a person who collects its own debts, using a name other than its own as if it were a debt collector.” Id. at 136. Certain exclusions exist, and “[a]s relevant here, exclusion (F)(iii) provides that the term debt collector does not include . . . any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity concerns a debt which was not in default at the time it was obtained by such person.” Id. (citing 15 U.S.C. § 1692a(6)(F)(iii)) (internal quotations and alterations omitted). The court determined that the definition’s “overall structure . . . makes clear . . . , we must first determine whether the person satisfies one of the [three] statutory definitions given . . . before considering whether that person falls into one of the exclusions . . . .” Id. “The material distinction between a debt collector and a creditor . . . is therefore whether a person’s regular activity is only for itself (a creditor) or whether it regularly collects for others (a debt collector)—not, as [Henson] urge[d], whether the debt was in default when the person acquired it.” Id.  
“And there [the Supreme Court found] it hard to disagree with the Fourth Circuit’s interpretive handiwork. After all, the Act defines debt collectors to include those who regularly seek to collect debts 'owed . . . another.' Any by its plain terms this language seems to focus our attention on third party collection agents working for a debt owner—not on a debt owner seeking to collect debts for itself. Neither does this language appear to suggest that we should care how a debt owner came to be a debt owner—whether the owner originated the debt or came by it only through a later purchase.” Henson, 582 U.S. ____, slip op. at p. 3. Stated differently, “[a]ll that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for 'another.'" Id.
Petitioner’s primary retort before the Supreme Court (also presented to, but afforded little weight by, the Fourth Circuit) centered on verb tense, underlining that the definition references “owed”—“the past participle of the verb 'to owe.'" Id., slip op. at pp. 3–4 (emphasis original). “And this, [petitioners] suggest[ed], means the statute’s definition of debt collector captures anyone who regularly seeks to collect debts previously 'owed . . . another.'" Id., slip op. at p. 4. “But this much doesn’t follow even as a matter of good grammar, let alone ordinary meaning.” Id. Indeed, the Court systematically denied each of petitioner’s attempts to work this tense distinction into the FDCPA and specifically the definition of debt collector. In dismissing one of petitioner’s final attempts to salvage its tense and post-default distinctions the Court summarized the hallmark of an FDCPA debt collector as follows: “After all and again, under the definition at issue before us you have to attempt to collect debts owed another before you can even qualify as a debt collector. And petitioners’ argument simply does not fully confront this plain and implacable textual prerequisite.” Id., slip op. at p. 8 (emphasis original). 
Ultimately, the Court affirmed the Fourth Circuit, settling a circuit split in favor of debt buyers. Notably, though, Henson specifically left open two issues. First, whether an entity can qualify as a debt collector not simply “because it regularly seeks to collect for its own account debts that it has purchased, but also because it regularly acts as a third party collection agent for debts owed to others.” Id., slip op. at p. 3. Second, the contours and meaning of being “engaged in any business the principal purpose of which is the collection of any debts.” Id. (citing 15 U.S.C. § 1692a(6)) (internal quotations omitted).  As such, while the law is settled that “individuals and entities who regularly purchase debts originated by someone else and then seek to collect those debts for their own account” fall outside the FDCPA, the simple fact that an entity owns the at-issue debt, standing alone, does not end the analysis. Nor does Henson directly implicate the various state unfair practices or consumer protection acts modeled on the FDCPA or the Consumer Finance Protection Bureau’s efforts to enforce what it deems to be unfair, deceptive or abusive acts or practices (UDAAPS). In short, Henson is a powerful tool for debt collectors, but it is unlikely to be the final chapter of this FDCPA story.