The Fair Debt Collection Practices Act prohibits debt collectors from a number of annoying and aggressive practices, like calling late at night to hassle folks about their debt or publicly outing people as debtors. However, this morning — in Justice Neil Gorsuch’s first opinion — the U.S. Supreme Court ruled that this law doesn’t apply to banks that purchase defaulted loans with the intention of collecting on them.
This case, Henson v. Santander Consumer, involves people who took out car loans through a Citi’s auto financing division and then defaulted on those loans. Their cars were repossessed and resold, but the borrowers still owed money to Citi. Rather than sell that debt off to a traditional collection agency, Citi sold the defaulted loans (more than $3.5 billion worth) to Santander in 2011.
In 2012, a group of four defaulted borrowers sued Santander in a federal court in Maryland, alleging — among other things — that the bank had violated the FDCPA by misrepresenting the amount of debt they owed, or that Santander even had the right to collect this debt.
Whether or not Santander violated the FDCPA rules has never been decided, since both the District Court judge and the Fourth Circuit Court of Appeals — and now the Supreme Court — said the case against the bank should be dismissed because its debt-collection practices aren’t covered by that law.
At issue is the FDCPA’s definition of a “debt collector.” The law says it refers to anyone “who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”
“Everyone agrees that the term embraces the repo man — someone hired by a creditor to collect an outstanding debt,” writes Gorsuch in the relatively short, unanimous opinion. “But what if you purchase a debt and then try to collect it for yourself — does that make you a ‘debt collector’ too?”
Gorsuch also notes that there is already a consensus understanding that third-party debt-collection agencies are explicitly covered by FDCPA while companies simply trying to collect on debt they are owed from their customers are not restricted by this law.
The question for SCOTUS was ultimately whether Santander was a collector trying to collect on a debt that was owed to Citi, or if Santander owned the debt.
Justice Gorsuch writes that the language of the FDCPA does not 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. All that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for ‘another.'”
In the court’s opinion, since Santander purchased the underlying loan portfolio from Citi, the bank was effectively trying to collect on debts it owns, which wouldn’t trigger the FDCPA.
The opinion notes that it may be entirely reasonable to think that the FDCPA should apply to all businesses attempting to collect debts, regardless of ownership, and that Congress may someday create a statute that does apply these rules more generally. This is a matter for lawmakers, says Gorsuch, and not the courts whose job it is to “apply, not amend, the work of the People’s representatives.”