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Supreme Court Continues To Limit Liability Under Debt Collection Act

Author: Barry Johnson

In the second of two Federal Fair Debt Collection Practices Act (FDCPA) cases this term, the United States Supreme Court continued a recent trend of limiting liability under the FDCPA. The case is Henson v. Santander Consumer USA, Inc. and Justice Gorsuch wrote the opinion for a unanimous court.

Santander purchased default auto loans and when it attempted to collect the debt, Henson sued alleging various violations of the FDCPA. Santander argued that it was not a “debt collector” as defined in the FDCPA because it collects for its own account rather than collecting debts “due another.”

The United States Supreme Court affirmed both the trial court and appellate court in holding that Santander was not a debt collector under the FDCPA based on a plain language of the statute’s definition of “debt collector” as someone who “collects debts owed or due another….” The Supreme Court found there is no wiggle room in this definition in that if a company “owns” the debt, the debt is then “due” to that company and the statute dictates a holding that such a company cannot be a “debt collector” and therefore cannot be sued under the FDCPA.

The Supreme Court rejected the holdings of some Courts of Appeal that a company who acquires defaulted debt becomes a “debt collector” under the FDCPA. The Supreme Court, once again relying upon the plain language of the statute, held that there was no support for this theory.

This ruling will have significant impact on any FDCPA compliance program as the interpretation rejected by the court – that the purchase of a defaulted debt would make a company subject to the FDCPA as to that debt – had been widely adopted in many important judicial circuits.

FDCPA cases will now shift to the two issues reserved and not answered by the opinion. First, the Supreme Court did not rule upon a claim by Henson that a company may be subject to the FDCPA if a substantial part of the company’s business comes from collecting debts from another. Here, Santander not only purchased debt and collected debt for its own account, but did contract collection work for third parties. Henson suggested that a company predominantly involved in debt collection for third parties may be subject to the FDCPA for accounts which the company owns. Second, Henson argued that a company can be subject to the FDCPA if its “principal business” involves the collection of debts, as may be true for Santander. The Supreme Court did not opine on either of these issues holding that they were outside of the question presented.

The Henson case – as well as the Midland Funding case decided earlier in this term – continues a recent trend by the Supreme Court to limit liability under the FDCPA by strictly reading, and being unwilling to go beyond, the plain language of the statue.

For more information about this case, or any other issue relating to consumer financing, please contact Barry Johnson at or 214-560-1714.