Tag Archives: FDCPA

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.”

New Ruling Subjects Mortgage Companies to FDCPA Liability

By Michael Fuller, Portland Trial Attorney

new legal opinion subjects mortgage companies to FDCPA liability for falsely implying that a law firm has been retained to collect on past-due accounts.

Creditors Not Regulated by the FDCPA

The Fair Debt Collection Practices Act (FDCPA) (15 USC § 1592a(6)) doesn’t generally regulate creditors collecting their own accounts. For example, the FDCPA doesn’t prohibit Verizon Wireless from directly harassing a consumer.

However, if Verizon Wireless turns a past-due account over to a third party for collections, the third party debt collector is subject to liability for harassment under the FDCPA.

Exception for Creditors Using “False Names”

Last week, the Second Circuit Court of Appeals held that the FDCPA applies to original creditors who give the false impression they have hired a third party law firm to collect debts.

How the “False Names” Exception Works

Under the case of Maguire v. Citicorp (2nd Cir. 1998), a creditor can be liable under the FDCPA if it:

  1. uses a name that falsely implies a third party is involved in collecting its debts,
  2. pretends to be someone else, or
  3. uses a pseudonym or alias.

The Money Store’s Law Firm Constituted a “False Name”

The case, Vincent v. The Money Store (2nd Cir. 2013), highlights a loophole used by many mortgage companies to escape liability under the FDCPA.

How the Loophole is Supposed to Work

‘The Money Store’ services Ms. Vincent’s mortgage.

Mortgage ServicingThe Money Store, in a letter sent by its law firm, allegedly charges Ms. Vincent improper mortgage fees.

If The Money Store is sued under the FDCPA, it argues the FDCPA doesn’t apply to it because the alleged misrepresentations were made by an independent third party law firm.

If a law firm is sued under the FDCPA, it argues that the FDCPA doesn’t apply to it because it was not “collecting debt” but merely sending a mortgage statement.

Why ‘The Money Store’ Fell Under the ‘False Name’ Exception

The Money Store’s letters told homeowners that a law firm had been retained to collect a debt for its client.

Lying Debt CollectorHowever, evidence showed that the threat was hollow; the law firm was simply a mass processor of letters. The Money Store actually maintained possession over its files. The law firm later shut its doors.

The Court reasoned that because the law firm did not engage in actual bona fide debt collection, a jury could find that The Money Store made false implications as to the name of the entity collecting its debts.

What This Means For Homeowners and Mortgage Companies

The opinion should have a positive impact on consumers seeking to hold mortgage companies and law firms accountable for alleged abuses in the foreclosure process, says consumer protection attorney Kelly Jones.

“The Vincent decision is a logical and necessary application of the ‘false name exception.’ A creditor shouldn’t be able to retain its exempt status under the FDCPA when it rents the name or letterhead of a law firm or other debt collector in order to further intimidate consumers and increase its collections rates,” says Jones.

Second Circuit Court of Appeals

The opinion is binding and must be followed by judges in the Second Circuit (Connecticut, New York, and Vermont). In all other states, the opinion serves as non-binding persuasive authority.


The Fifth and Seventh Circuits have reached the same conclusion under different circumstances. For more information, read Taylor v. Perrin (5th Cir. 1997) and Boyd v. Wexler (7th Cir. 2001).

About the Author: Michael Fuller is a Portland trial attorney and chair of the Olsen Daines law firm’s Consumer Protection Group. You can follow him on Google+Twitter, and visit his blog at www.UnderdogLawBlog.com.

Click here to read more from this author about a Ninth Circuit case dealing with FDCPA liability in the mortgage fraud context called Corvello v. Wells Fargo Bank (9th Cir. 2013).