Henson v. Santander: For Debt Buyers, Neither Smoke Nor Fire

In his debut opinion, Justice Neil M. Gorsuch wrote for a unanimous United States Supreme Court, holding that banks and financial companies that purchase and collect defaulted debt are not “debt collectors” under the Fair Debt Collection Practices Act. At first blush, the Court’s affirmance of the Fourth Circuit’s holding in Henson, et. al. v. Santander Consumer USA Inc. appears to offer much-anticipated relief to debt buyers, who acquire defaulted debts to collect for themselves, but have long been considered “debt collectors” under the FDCPA pursuant to a consistent line of district and appellate court decisions.

The FDCPA provides that the term “debt collector” means:

“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.”

Henson’s auto loan was originated by CitiFinancial Auto and purchased by Santander after default. He asked the Court to find that Santander met the definition of “debt collector” under the FDCPA, arguing that the word “owed” is the past participle of the verb “to owe,” and that statutory definition should be construed to include “anyone who regularly seeks to collect debts previously ‘owed… another.’” In a mix of grammatical analysis and statutory construction, the Court declined, pointing out that other provisions of the FDCPA demonstrated Congress’ intent to use the word “owed” “to refer to present (not past) debt relationships.”

The Court similarly refused construe the FDCPA’s “servicer exemption” (which excludes persons who obtain debts prior to default from the definition of “debt collector”) to mean that all persons who obtain debts after default are automatically “debt collectors.” In rejecting that analysis, the Court maintained its focus on the identity of the person to whom the debt is owed: “After all and again, under the definition at issue before us you have to attempt to collect debts owed another before you can ever qualify as a debt collector.” Finally, the Court was unpersuaded by Henson’s policy arguments, and refused to speculate as to how Congress might have drafted the FDCPA had it known that a debt purchasing industry would blossom years after its enactment.

Notwithstanding its conclusion, the Henson opinion does not end the argument that debt buyers may still be “debt collectors” under the Act. The FDCPA contains not one definition of “debt collector,” but two. Henson addressed only the former, holding that businesses who purchase and collect defaulted debts are collecting debts owed to them rather than to another. But the Court explicitly declined to address the latter definition, noting that the question was not properly before it. Justice Gorsuch wrote, “… the parties briefly allude to another statutory definition of the term ‘debt collector’ – one that encompasses those engaged ‘in any business the principal purpose of which is the collection of any debts.’ But the parties haven’t much litigated that alternative definition and in granting certiorari we didn’t agree to address it either.” Henson’s holding is thus quite narrow: far from concluding that debt buyers are not subject to the FDCPA, Henson simply confirms that creditors servicing accounts that they own (even when acquired post-default) are not collecting debts “owed another,” and thus do not meet one statutory definition of “debt collector.” Nothing in Henson disturbs the Act’s inclusion of businesses whose “principal purpose” is the collection not just of debts owed to it, but of “any” consumer debts, in the definition of “debt collector.”

For debt buyers, Henson shifts the focus from the question of to whom the debt is owed, to the question of whether a business’ “principal purpose is the collection of [consumer] debts.” Henson offers no guidance to the debt-buying industry – or to courts – on this issue, leaving no doubt that future litigation will ensue as businesses and consumers alike debate the limits of the statutory language. Until further guidance follows, businesses purchasing and collecting defaulted consumer debt should continue to comply with the FDCPA, in spite of the fact that they own the debts they seek to collect.