Supreme Court resolves conflict and holds that a purchaser of defaulted debt is not a “debt collector” under the FDCPA

The Supreme Court in Henson v. Santander Consumer USA Inc., No. 16-349 (June 12, 2017) resolved a conflict among various circuits as to whether a person who buys debt is a “debt collector” under the FDCPA. The Court sided with the Fourth Circuit in holding that by buying debt that was in default did not make the assignee of the debt a debt collector because it didn’t regularly seek to collect debts “owed … another”. The decision overrules decisions from the Third, Sixth, Seventh and Eleventh Circuits.

The Court focused its inquiry on how to classify entities who regularly purchase debts originated by someone else and then seek to collect those debts for their own account. Starting with the statutory language, the Court observed that the FDCPA defines debt collectors to include those who regularly seek to collect debts “owed … another.” While this language seems to apply to third party collection agents working for a debt owner, it does not appear that how the debt owner came to be a debt owner is relevant. All that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for “another.” Thus, a debt purchaser may indeed collect debts for its own account without triggering the statutory definition.

The Court was not impressed with the debtors’ argument that the word “owed” is the past participle of the verb “to owe” implying that it refers to those who regularly seeks to collect debts previously “owed … another.” The Court said that past participles like “owed” are routinely used as adjectives to describe the present state of a thing. Considering the statutory phrase in which the word “owed” appears—“owed or due … another”— underscores this point. Congress routinely used the word “owed” in the FDCPA to refer to present (not past) debt relationships. Debtors also argued that the word “due” describes a debt currently due at the time of collection and not a debt that was due only in some previous period. But that reading wrongly supposes that Congress set two words next to each other but meant them to speak to entirely different periods of time.

Debtors also pointed to the fact that the statute excludes from the definition of “debt collector” certain persons who obtain debts before default implying that the term must embrace those who regularly seek to collect debts obtained after default. According to the Court, while the statute excludes from the debt collector definition certain persons who acquire a debt before default, it doesn’t necessarily follow that the definition must include anyone who regularly collects debts acquired after default. After all under the definition at issue one has to attempt to collect debts owed another before one can ever qualify as a debt collector.

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