SCOTUS Holds that Auto Loan Lender Santander Is Not a Debt Collector Pursuant to the FDCPA

By Kelly D. Jones, Consumer Rights Attorney

On June 12, 2017, the U.S. Supreme Court issued a unanimous decision in Henson v. Santander Consumer USA Inc., the first decision authored by Justice Gorsuch. The slip opinion can be found here.

Santander Consumer USA Inc. is a subsidiary of a large European bank conglomerate, and the principal purpose of its business is extending and servicing auto loans. Although it typically does not purchase accounts or debts from other creditors, in this instance, Santander purchased a portfolio of defaulted auto loan accounts from CitiFinancial Auto that had been the subject of a class action settlement against CitiFinancial. This portfolio included accounts owed by Ricky Henson and other consumers. Santander attempted to collect on the accounts, and Henson, along with four other Maryland consumers, sued Santander and multiple other defendants in the United States District Court for the District of Maryland, alleging various violations of the federal Fair Debt Collection Practices Act (FDCPA).

Santander filed a motion to dismiss the FDCPA lawsuit, arguing that it was not a “debt collector” pursuant to the FDCPA and thus could not be found liable. 15 U.S.C. § 1692a(6) defines debt collector, in part, as

any person [1] 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 [2] who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.

The district court and the Fourth Circuit  both concluded that because Santander’s principal business purpose is the origination and servicing of auto loans, it did not qualify as a debt collector under the first definition. Santander also argued it was not a debt collector pursuant to the second definition because it does not regularly collect debts owed or due to another entity, as the only debts it attempted to collect that it did not originate were debts it owned. The Supreme Court upheld the decision of the Fourth Circuit, finding that Santander was not a debt collector that could be found liable for violating the FDCPA. The Court also rejected Henson’s argument that because 15 U.S.C. § 1692a(6)(F)(iii) specifically excludes persons who collect non-defaulted debt from the definition of debt collector, the term debt collector included all entities that regularly attempt to collect debts obtained after default.

Practitioners should be careful to note that the Supreme Court did not hold that debt buyers, in general, are not subject to the FDCPA simply because they may have purchased defaulted debts from another entity before they began collecting on the debts. The Court merely found that entities that are collecting upon debts that they own are not debt collectors under the second definition of 15 U.S.C. § 1692a(6), and it made sure to point out that it was not addressing the first definition (“principal purpose”) of debt collector by stating:

[T]he 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.” §1692a(6). But the parties haven’t much litigated that alternative definition and in granting certiorari we didn’t agree to address it either.  With these preliminaries by the board, we can turn to the much narrowed question properly before us.

Henson v. Santander Consumer USA, Inc., No. 16–349, slip op. at 3 (U.S. June 12, 2007). The two definitions of debt collector are clearly distinct, and an entity that meets either definition is regulated by the FDCPA. See Schlegel v. Wells Fargo Bank, NA, 720 F.3d 1204, 1208-10 (9th Cir. 2013); Pollice v. Nat’l Tax Funding, L.P., 225 F.3d 379, 405 (3d Cir. 2000). Unlike entities such as Santander, whose principal business purpose is originating and servicing active loans, the principal purpose of debt buyers is the acquisition of defaulted debts for the purpose of collecting on the debts—regardless of whether they themselves then collect on the debts or hire other debt collectors to collect on their behalf. See, e.g., Pollice, 225 F.3d at 405; see also Davidson v. Capital One Bank (USA), N.A., 797 F.3d 1309, 1316 n.8 (11th Cir. 2015) (distinguishing creditors like Capital One from other entities such as debt buyers, whose “principal purpose” of business is the purchase and collection of charged off debts, that cannot escape FDCPA regulation). After all, a debt buying business that acquired debts for any other purpose besides to collect them (or directing others to do so) would not be in business for long.

For a more detailed analysis of the debt buying industry check out this 2013 study by the FTC:  “The Structure and Practices of the Debt Buying Industry.”

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