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SCOTUS upholds narrow interpretation of "debt collector" under the FDCPA

ABSTRACT: A unanimous Supreme Court upheld the Fourth Circuit's holding in Henson v. Santander Consumer USA Inc., in which the Circuit Court held that, although Santander was the purchaser of a debt that was in default, it was not a "debt collector" under the FDCPA, and thus, was not subject to its stringent requirements for collection activities.

Yesterday, the United States Supreme Court, in a unanimous decision, issued a ruling that resolves a circuit split as to whether or not the purchaser of a defaulted debt is a “debt collector” under the Fair Debt Collection Practices Act (the “FDCPA”). In the first Supreme Court opinion authored by Justice Neil Gorsuch, the Court held that Santander, the purchaser of a defaulted debt, was not a “debt collector” as defined by the Act.

The Supreme Court’s opinion focused on the plain language of the statute, which defines a debt collector as a person or entity who “regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” 15 USC § 1692a(6).  There has been a split among the circuits as to whether that definition is to be applied to a debt buyer who purchases accounts in default, and then collects on those accounts. 

The rationale of the opinion was hinged on syntax and legislative intent, in large part.  Plaintiff argued that “owed” was to be read as past-tense, meaning that the debt in question used to be owed to another party.  But the Court rejected this argument and provided plaintiff a rather costly grammar lesson, reasoning that, had Congress intended for the term “owed” to be read in the past tense, it would have drafted the definition to read “were owed or are due another.”  Rather, the Court held, the definition is to be interpreted to mean that a debt collector is someone who does not own the debt, but is collecting on behalf of a separate party who owns or originated the debt.

The Court further reasoned that, had Congress intended for the definition of a “debt collector” to include purchasers of debt, it would have included a distinction between an original creditor and a “current” creditor in the definition, as it had done throughout the Act in other sections.

The Henson outcome will certainly have a chilling effect on FDCPA litigation in many circuits, where successor owners of debt have been ordered to pay immeasurable damages in litigation for purported violations of the FDCPA.   The opinion may be found in its entirety here.