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Publications | June 14, 2017
3 minute read

Those Who Purchase Debt Are Not “Debt Collectors” Under the Fair Debt Collection Practices Act

In Henson v. Santander Consumer USA Inc., issued June 12, 2017, the Supreme Court held that those who seek to collect on purchased debts are not considered “debt collectors” under the Fair Debt Collection Practices Act (FDCPA) and therefore are not required to abide by the statutory limitations on debt collection practices.

The Court’s Reasoning

The FDCPA defines a “debt collector” as anyone who “regularly collects or attempts to collect . . . debts owed or due . . . another” (emphasis added). The Supreme Court held that under a plain reading, this language encompasses only a third party collecting on behalf of the debt owner, not a debt owner seeking to collect debts for itself.

The Court rejected the petitioners’ argument that the word “owed” must mean previously owed to another and would therefore exclude loan originators but embrace loan purchasers as “debt collectors.” This is because the word “owed” is often used to refer to present debt relationships, both generally and in other provisions of the FDCPA. The Court is therefore able to rely on the presumption that identical words carry the same meaning. Further, other portions of the statute make clear that when Congress wished to distinguish between loan purchasers and originators, it would leave no doubt in the matter.

The Court also rejected the argument that the exclusion of debt purchasers works against the FDCPA’s purpose, which was to protect debtors from abusive collection practices not typically employed by creditors themselves. The petitioners argued that large-scale debt purchasers like the respondent are similarly likely to engage in abusive collection practices that are sometimes employed by third party debt collectors. However, the Court noted that it is not the Court’s job to speculate about what Congress might have done if it had been confronted with the market for defaulted debt, which all parties agreed did not exist when the FDCPA was passed in 1977. Further, reasonable legislators could differ on how to deal with purchasers of defaulted debt.

The Impact and Implications for Creditors and Debtors

The Supreme Court’s decision makes clear that the debt collection requirements imposed on “debt collectors” by the FDCPA do not apply to those collecting on debt that they purchased. Therefore, those who fall within this category are permitted to engage in collection practices that are prohibited for third party debt collectors under the FDCPA.

The Court did not decide whether the party seeking to collect the debt could qualify as a debt collector under the FDCPA because it regularly collected debts owed by other debtors on behalf of third parties, as well as debts purchased for its own account. The Court also did not decide whether the party seeking to collect the debt could qualify as a debt collector under the provision for businesses whose principal purpose is to engage in the collection of debts. Finally, since the Court considered the issue in this case an issue for Congress to resolve, future legislation could change to address collection practices of debt purchasers.

For more information about the Fair Debt Collection Practices Act, contact your Warner Restructuring and Insolvency Law attorney, Elisabeth Von Eitzen or Emily Rucker.