In a decision handed down on June 12, 2017, the United States Supreme Court substantially undermined what many believe is the intent of the federal Fair Debt Collection Practices Act (“FDCPA”). The FDCPA is a federal statute that prohibits certain unfair and abusive practices by those collecting consumer debts. Those who violate the FDCPA can be held liable for actual damages or statutory damages of up to $1,000, plus reasonable attorneys’ fees.
In Henson v. Santander Consumer USA Inc., No. 16-349, the Supreme Court unanimously held, focusing solely on the plain language of the statute, that a financial institution attempting to collect debts that it purchased from the actual creditor cannot be held liable under the FDCPA. This decision is significant because many debt collection companies do not merely collect debts owed to others and, instead, purchase debt in bulk from the creditors and then attempt to collect it themselves. The Supreme Court held that such “debt purchasers” do not fall within the definition of “debt collector” since they are not regularly collecting debts “owed . . . another”. However, it is unclear from the Court’s decision whether a company that regularly collects debts owed to another, but also purchases debt and attempts to collect it, can be held liable when it uses unfair or abusive practices to collect the purchased debt; however, such a theory seems unlikely to succeed.
The Supreme Court had decided to hear the case due to a split among lower circuit courts of appeal. In rendering its decision, the Supreme Court sided with the Fourth Circuit (covering the statues of Maryland, North Carolina, South Carolina, Virginia, and West Virginia) and Eleventh Circuit (Alabama, Florida, and Georgia), and overruled decisions by the Third Circuit (Pennsylvania, New Jersey and Delaware) and Seventh Circuit (Illinois, Indiana and Wisconsin).
Although the Supreme Court has spoken, Congress could pass legislation to amend the FDCPA to specifically state that anyone who purchases consumer debt for the purpose of collecting it is a “debt collector” under the FDCPA. However, that is unlikely to occur with a Republican-controlled Congress and White House.