Gorsuch Tackles Debt Collection in First Opinion for Supreme Court
Newly appointed Justice Neil Gorsuch issued his first opinion on June 12th for a unanimous court in a case concerning who qualifies as a debt collector under the Fair Debt Collection Practices Act (FDCPA).
In Henson v. Santander Consumer USA Inc., Santander purchased defaulted car loans from CitiFinancial Auto. The borrowers felt that Santander was using unfair collection practices, so they brought a suit against the company for violations of the FDCPA. At the district and circuit court levels, Santander argued that they were not a debt collector as defined in the FDCPA, and thus not subject to the requirements of the act. The lower courts agreed, and the borrowers pursued the issue to the Supreme Court.
A unanimous Supreme Court held that Santander is not classified as a “debt collector” under the FDCPA. Gorsuch noted that there is no question that the “repo man,” someone who collects a debt for another, is undoubtedly subject to the provisions of the FDCPA. The two parties agreed that loan originators are also free to collect debts owed without triggering the FDCPA. However, the dispute asked the status of a company that purchased debt from a loan originator and intended to collect the debt themselves. The circuit courts were split on the matter.
Justice Gorsuch did posit two additional questions, but refused to elaborate after the parties failed to address them in their petitions to the court. First, he noted that Santander also frequently collects debts for others, practices that would likely fall under the FDCPA. Gorsuch briefly wondered if this would be sufficient to impose the FDCPA on Santander when it also chose to collect on its own debts. Second, Gorsuch alluded to an alternate definition within the act of “debt collector,” one that centered more on the principle activity of the company in collecting debts. Unfortunately, neither argument was presented by the parties, so Gorsuch left the answers for another lawsuit in the future.
Ultimately, the Supreme Court sided with the Fourth Circuit and affirmed their ruling that purchasers of debt to be collected for the purchasing party are not “debt collectors” under the requirements of the FDCPA. While third party collection services are still very much regulated by the FDCPA, the Supreme Court’s decision brings certainty and regulatory clarity for companies that purchase charged off debt and still seek to collect.
The Consumer Financial Protection Bureau (CFPB) is the federal agency charged with the enforcement of the FDCPA (although citizen lawsuits are also permitted) and oversight of debt collection services. The CFPB issued a report in April on the agency’s administration of the FDCPA. In 2015 alone, the CFPB received 85,000 complaints related to debt collection and issued more than $79 million in fines to debt collectors. CFPB Director Richard Cordray commented last week that his agency plans on revamping some debt collection rules in the near future, including rules to potentially cover debt buyers like Santander.