SCOTUS Clarifies Who is a Debt Collector Under FDCPAOn July 5, 2017 by Schnader in Finance
The Fair Debt Collection Practices Act (FDCPA) prohibits a “debt collector” from using any “false, deceptive, or misleading representation or means in connection with the collection of any debt,” as well as any “unfair or unconscionable means to collect or attempt to collect any debt.” 15 U.S.C. §§ 1692e, 1692f. The critical predicate for liability under these provisions is that the party allegedly engaged in the improper conduct is, in fact, a “debt collector.” It is well-settled that a party seeking to collect for its own account a debt it itself originated is not a “debt collector,” while an independent party in the business of collecting debts owned by others is a “debt collector.” However, over the past ten years a circuit split arose regarding whether a party that buys debts originated by someone else, after those debts have gone into default, and then seeks to collect those debts for its own account is a “debt collector.” The Third and Seventh Circuits concluded that such parties are debt collectors under the FDCPA, while the Fourth and Eleventh Circuits concluded that they are not. The U.S. Supreme Court recently weighed in in Henson v. Santander Consumer USA Inc.. In a unanimous decision authored by Associate Justice Gorsuch (his first), the Court concluded that at least one part of the FDCPA’s definition of a “debt collector” excludes such parties.
The FDCPA broadly defines a “debt collector” as “any person” who (1) “uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts” (sometimes referred to as the FDCPA’s “first definition” of a “debt collector”) or (2) “who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another” (sometimes referred to as the “second definition” of a “debt collector”). 15 U.S.C. § 1692(a)(6). The statute then lists six exclusions, one of which is relevant to the Henson decision. Specifically, this exclusion provides that the term “debt collector” “does not include” “any person collecting or attempting to collect any debt owed or due . . . another to the extent such activity . . . concerns a debt which was not in default at the time it was obtained by such person.” 15 U.S.C. § 1692a(6)(F)(iii). This exclusion is discussed further below.
The Court in Henson addressed the second definition, the portion that applies to those who “regularly collect . . . debts owed or due . . . another.” The Court specifically declined to address the first definition, the portion that applies to persons “in any business the principal purpose of which is to the collection of any debts,” stating that “the parties haven’t much litigated” this portion and it was outside the scope of the grant of certiorari.
Addressing the second definition, the Court fairly easily concluded that it excludes those who, like the respondent in Henson, purchase debts (even, importantly, after the debts have already gone into default) and seek to collect those debts for their own account. Because the second definition by its terms refers to the collection of debts owed to “another,” it follows, the Court held, that the definition does not include those who collect debts for themselves.
The petitioners’ primary argument against this conclusion was that the second definition uses the word “owed” in the past tense. Thus, according to the petitioners, a subsequent purchaser of a debt that was at one time “owed” to “another,” namely, the originating lender, would qualify as a “debt collector.” The Court rejected this argument, noting that the word “owed” could easily be understood in the present tense, and, in any event, construing it in the past tense would be difficult to square with the nearby word “due” (“owed or due . . . another”), which indisputably is used in the present tense.
The Court then addressed the exclusion, alluded to above, removing from the definition “any person collecting or attempting to collect any debt owed or due . . . another to the extent such activity . . . concerns a debt which was not in default at the time it was obtained by such person.” 15 U.S.C. § 1692a(6)(F)(iii). The Court rejected the petitioners’ suggestion that by excluding a person collecting a debt that “was not in default at the time it was obtained by such person,” the definition of “debt collector” impliedly included a person collecting a debt that was in default “at the time it was obtained by such person” (which allegedly was the case with the debts at issue here).
The Court concluded, first, that the term “obtained” in this exclusion does not mean “purchased,” but rather having taken “possession” of a debt “for servicing and collection.” Second, the Court concluded that since the exclusion removes persons from the scope of the term “debt collector” who would otherwise fall within it, the exclusion does even not apply unless the person at issue does indeed satisfy the initial definition. In other words, a person must, as a threshold, “attempt to collect debts owed another” in order for the logically secondary question to arise as to whether that person is within the terms of the exclusion. The Court observed that the “petitioners’ argument simply does not fully confront this plain and implacable textual prerequisite.”
Although it is now clear that a party seeking to collect a debt for its own account (even when it acquired the debt after it had already gone into default) cannot be a “debt collector” under the second of the two definitions in the FDCPA, by declining to address the first definition, the Court in Henson left open the possibility that a party collecting for its own account might still qualify as a debt collector if it is “in any business the principal purpose of which is the collection of any debts.” 15 U.S.C. § 1692a(6). Indeed, the Eleventh Circuit, after concluding, like the Supreme Court in Henson, that the second definition excludes parties collecting debts for their own accounts, expressly acknowledged that such a party might nevertheless be a debt collector under the first definition if its “‘principal purpose’ is the collection of ‘any debts.’” Davidson v. Capital One Bank (USA), N.A., 797 F.3d 1309, 1316 n.8 (11th Cir. 2015).
There are comparatively few decisions analyzing the first definition, but that presumably will change in the wake of Henson, as plaintiffs, and their lawyers, seek to make use of this still potentially open path to attempt to establish that a debt owner is a “debt collector.” Parties that purchase and collect debts for their own accounts should pay close attention as this issue evolves. This blog will track and report on significant developments.