What Is The Definition Of A “Debt Collector”?

Going For The Gold With Jonathan S. Goodgold

On June 12, 2017, the United States Supreme Court issued its decision on Henson v. Santander Consumer USA Inc., 582 U.S. ___ (2017). In a unanimous decision, the Supreme Court affirmed the decisions of the District Court and Fourth Circuit Court of Appeals that found that the buyers of debt are excluded from the definition of “debt collector” contained within the Fair Debt Collection Practices Act (FDCPA).

By way of background, the FDCPA provides a very detailed definition of what a “debt collector” at 15 U.S.C. § 1692(a)(6). That definition provides, in relevant purpose, that a debt collector is “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. . .”

Even more interesting in the statutory definition is what is excluded from the definition of a “debt collector”:

(A) any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor;

(B) any person while acting as a debt collector for another person, both of whom are related by common ownership or affiliated by corporate control, if the person acting as a debt collector does so only for persons to whom it is so related or affiliated and if the principal business of such person is not the collection of debts;

(C) any officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties;

(D) any person while serving or attempting to serve legal process on any other person in connection with the judicial enforcement of any debt;

(E) any nonprofit organization which, at the request of consumers, performs bona fide consumer credit counseling and assists consumers in the liquidation of their debts by receiving payments from such consumers and distributing such amounts to creditors; and

(F) any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity (i) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement; (ii) concerns a debt which was originated by such person; (iii) concerns a debt which was not in default at the time it was obtained by such person; or (iv) concerns a debt obtained by such person as a secured party in a commercial credit transaction involving the creditor.

So in essence, the FDCPA excludes creditors seeking to collect their own debts from the definition of “debt collector.” For purposes of the Henson case, of note is that an originator of the debt is excluded from the statutory definition, as is whether the debt was in default at the time it was obtained by the collector.

The Supreme Court was faced with a debt-buyer, in this case, Respondent, Santander Consumer USA Inc. (hereinafter “Santander”), who purchased the debts of an auto lender. Suit was filed by the plaintiffs alleging violations of the FDCPA. Santander successfully argued that since they bought the debt, the debt then became theirs, and thus Santander is excluded from the requirements of the FDCPA. Justice Gorsuch, writing for the unanimous Court, in so finding, held: “All that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for ‘another.’ And given that, it would seem a debt purchaser like Santander may indeed collect debts for its own account without triggering the statutory definition in dispute, just as the Fourth Circuit explained.” Additionally, the Court confirmed that “a company collecting purchased defaulted debt for its own account—like Santander—would hardly seem to be barred from qualifying as a creditor under the statute’s plain terms.” The Court found that the plain reading of the statutory language in the FDCPA trumped any textual or policy argument to the contrary.

The Supreme Court’s decision did not consider two other possible definitional arguments that were not raised in the petition for certiori: 1) that Santander would qualify as a “debt collector” under the FDCPA because it also ”regularly acts as a third party collection agent for debts owed to others;” and 2) that Santander was engaged in “any business the principal purpose of which is the collection of any debts.” (citing 15 U.S.C. § 1692a(6)). It is not know whether either of those arguments would have swayed the Court, at least under the factual predicate facing the Court.

While it appears the Supreme Court correctly decided this case based on the clear language of the FDCPA, the decision seems to allow an end-run around the protections of the FDCPA. The FDCPA is to protect consumers from untoward, aggressive and harassing collection actions. It appears that it would permit unscrupulous debt collectors to avoid the FDCPA protections by merely buying the debt from another. I can envision affiliated companies buying each other’s debts in order to avoid the obligations of the FDCPA. Only time will tell and only time will tell whether there are other challenges to debt buying activity and whether the legislature will attempt to modify the FDCPA to fully address this issue and its potential ramifications.

Jonathan S. Goodgold, Esq. became Of Counsel to the firm in January 2015 and merged his own law firm into The Beinhaker Law Firm, LLC as of January 1, 2016. Jonathan had his own law firm for over seven years focusing on employment and collection law matters, as well as all aspects of civil litigation. Prior to having his own practice, Jonathan practiced at a leading labor and employment law firm in New Jersey and a civil litigation firm in Hackensack, New Jersey.  You can reach Mr. Goodgold by email at JSG@BeinLaw.com


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