Henson v. Santander Consumer USA, Inc.

Does the federal Fair Debt Collection Practices Act (FDCPA), which regulates abusive debt collection practices by debt collectors, cover repeat debt buyers?

The Issue: The FDCPA seeks “to eliminate abusive debt collection practices” by “any person . . . the principal purpose of [whose business] is the collection of any debts, or who regularly collects or attempts to collect . . . debts owed or due or asserted to be owed or due another.” The FDCPA offers essential consumer protections from the widespread problems of abuse, intimidation and harassment by those seeking to collect debts. For example, debt collectors are prohibited from claiming that debtors will be arrested for failure to pay, or from calling outside the hours of 8 am to 9 pm.

The issue in this case is whether a business that regularly buys debts and then seeks collection for itself is subject to the Act. The Fourth Circuit held that it is not, because a debt buyer collects debts owed to itself rather than to “another.” By contrast, the majority of Circuits have held – more consistently with statutory purpose – that debt “owed . . . another” refers not to the time of collection but to the time of default or charge-off.

Why It Matters: The Fourth Circuit’s decision has the potential to significantly undermine protection of some of the nation’s most vulnerable consumers against an industry mired in misconduct. According to the Federal Trade Commission and the Consumer Financial Protection Bureau, debt collection generates more complaints than any other industry. The rule of the Fourth Circuit would exempt large banks and other diversified businesses from FDCPA coverage, depriving consumers of their best (federal law) weapon against coercive debt collectors. It would mean that powerful financial services companies are held to a lower standard than fly-by-night debt buyers, so long as they are collecting debts that someone else originated. On the Fourth Circuit’s cramped view of the protections afforded by the FDCPA, debt servicers could escape liability for abusive practices by simply purchasing debt before seeking to collect. Debt collection businesses could also escape FDCPA coverage by strategically merging with other entities, so that debt collection is no longer their “principal purpose.” Allowing such evasions would undermine the FDCPA. Recent enforcement history shows that diversified financial institutions of this nature engage in abusive debt collection practices when they purchase and collect on defaulted loans, as happened in this case.

Contribution of Public Good: Public Good co-authored an amicus brief on behalf of law school consumer clinics that handle debt collection matters. The brief illustrated the need to regulate part-time debt buyers alongside other debt collectors through numerous examples of abuses they have engaged in. The brief also pointed out the incentives created by the Fourth Circuit’s interpretation for unscrupulous debt collectors to evade regulation. Finally, the brief argued that the Court should give considerable weight to the interpretations of the two agencies granted broad enforcement and rulemaking authority by Congress over the FDCPA. Those agencies have consistently interpreted the scope of the Act to include debt collectors that acquired debt in default.

Amici represented by Public Good: Public Good’s brief in the Supreme Court was filed on behalf of the Yale Law School Jerome N. Frank Legal Services Organization, the UC Berkeley Law School/East Bay Community Law Center, and the Notre Dame Law School Economic Development Project.

Outcome: In a unanimous decision, the Supreme Court held that the definition of “debt collector” under the FDCPA does not include diversified companies like Santander when they collect debts they have purchased. Notably, the ruling should not affect debt buyers whose principal purpose is debt collection. The decision may, however, cause some debt buyers to restructure to avoid the law.

817 F.3d 131 (4th Cir. Mar. 23, 2016), and judgment affirmed, 137 S.Ct. 1718 (June 12, 2017).

Download our brief filed in Henson v. Santander Consumer USA, Inc.