Tag Archives: Kelly D. Jones

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.”

The CFPB Issues Proposed Rule to Prohibit the Use of Class Action Waivers in Consumer Financial Product Arbitration Agreements

court justice

By Kelly D. Jones, Attorney

On May 5, the Consumer Financial Protection Bureau (CFPB) released a proposed rule that would prohibit the inclusion of class action waivers into forced private arbitration clauses. Importantly, the proposed rule does not prohibit mandatory private arbitration clauses in consumer agreements in general, just the use of class action waivers. A typical consumer financial contract contains a lengthy arbitration clause specifying that the consumer agrees to resolve any dispute that she may have with company, or even other entities that the company may assign the contract to down the road, in private arbitration rather than in a court and waives the consumer’s constitutional right to have their dispute heard by a jury of her peers. Arbitration clauses are usually buried in fine print inside a long and legalistic contract, which may not even require the consumer’s signature to be valid and enforceable. Arbitration clauses are often referred to by critics as requiring “forced arbitration” or as “contracts of adhesion” as the consumer does not have equal bargaining power to reject the contractual terms, even if she could actually decipher the legalese and understand exactly what rights they were giving up and what she was agreeing to. Moreover, the typical arbitration clause contains a class action waiver, whereby the consumer waives their right to participate as a member, or representative, of a class action lawsuit and ability to aggregate their potential claims with other consumers who have been harmed by the alleged wrongdoer.

In recent decades, as a result of congressional action (chiefly the Federal Arbitration Act (FAA)) and pro-arbitration judicial opinions broadly interpreting the FAA and prohibiting state regulations of arbitration based upon federal preemption doctrine, arbitration clauses have been largely upheld and have become ubiquitous. Whereas financial institutions and other private arbitration advocates have long touted private arbitration as an efficient and cost-effective method of dispute resolution, consumer rights advocates have called out for change arguing that mandatory private arbitration creates inconsistency in outcomes, offers a very limited basis to appeal wrong decisions, lacks transparency as the proceedings are not part of the public record, and actually increases costs for the consumer plaintiff—which ultimately means that consumers are much less likely to be able to secure legal representation to seek relief for the harms they suffered. Further, consumer advocates assert that class action waivers effectively eliminate the ability to hold corporate defendants accountable when the alleged damages may be quite small yet thousands, or perhaps even millions, of consumers were injured, because the inability to aggregate the claims of the many victims in a consolidated class case would necessitate a myriad of individual cases that would become much too costly and inefficient to litigate on an individual basis.

It is important to note that this is just a proposed rule—there is a 90-day comment period starting from when the proposal is entered into the Federal Register, and then the CFPB will assess the comments and submit a final rule. Even then, if the rule is adopted, it will likely face judicial challenge given that the opponents of the rule are well-funded groups associated with national banks, institutional creditors, and other large corporations. Also, even if adopted, the rule would only regulate financial institution products (given the scope of the CFPB’s rulemaking authority), and even some financial products are exempted from the rule.

The full text of the proposed rule can be found online here.

Kelly D. Jones is a solo bankruptcy & consumer rights attorney in SE Portland

2015 Federal Budget Provides TCPA Exemption for Government-Backed Debt Collection Calls

debt calls-cell phone

By Kelly Jones

As part of the 2015 budget compromise, the Bipartisan Federal Budget Act of 2015 (“Act”) signed into law by President Obama on November 2, 2015 amends the Telephone Consumer Protection Act’s (“TCPA”) prohibitions on autodialed or artificial/prerecorded voice calls (and texts) made to cell phones without the prior express consent of the called party by exempting calls or texts that are “made solely to collect a debt owed to or guaranteed by the United States.” Thus the exception shields even third-party collectors as long as they are attempting to collect on a government-backed debt. This exception applies even when the caller does not have the prior consent of the called party, and thus there is no way for the consumer to stop the unwanted calls by revoking consent. It appears that even calls made to the wrong party/number are nonetheless included within this exception.

This amendment will likely affect student loan borrowers the most as this is the largest segment of government-backed debt collection—but the exception also presumably encompasses Small Business Administration loans, government-guaranteed mortgage loans, and federal tax liabilities. However, the Act allows for the Federal Communications Commission (“FCC”), the agency delegated TCPA rulemaking and implementation, to implement rules that “restrict or limit the number and duration” of calls made to cell phones to collect government-backed debts, but it remains to be seen if, and to what extent, the FCC will do so.

Kelly D. Jones  is a solo attorney located in inner SE Portland and represents consumers in unlawful debt collection litigation and bankruptcy cases.