In Justice Neil Gorsuch’s first written opinion for the Supreme Court, he handed down a major victory for the secondary debt market by ruling that debt buyers do not fall under the definition of “debt collector” for purposes of the FDCPA. Under the FDCPA, debt collectors are subject to strict requirements when attempting to collect debts and violating these rules leads to significant liability. Until now, a split among the circuits existed as to whether the term “debt collector” includes entities that purchase debt originally owned by another party. The Supreme Court therefore granted writ in Henson v. Santander Consumer USA, Inc. in order to resolve the inconsistent application across jurisdictions.
In Henson, the borrowers obtained a car loan from CitiFinancial, who later sold the loan to Santander. After the borrowers defaulted, Santander attempted to collect on the loan in a manner which the borrowers claimed was in violation of the FDCPA. However, both the trial court and Fourth Circuit ruled that as the owner of the debt, Santander was not collecting “debts owed or due…another” under 15 U.S.C. § 1692a(6). In arguing otherwise, the borrowers pointed to the past participle “owed” to suggest that so long as the entity was not the originator of the loan, it must be considered a debt collector under the FDCPA.
The Court rejected this argument, reminding the borrowers that a past participle may refer to something in the present, such as “burnt toast.” It also declined to engage in a discussion of the policy behind the FDCPA, as the plain language did not demand any further inquiry. The Supreme Court concluded that it is the responsibility of Congress to amend the statute if it does not adequately reflect the reality of the modern secondary debt market, not that of the Court.
It is this final point from the Court that underscores the importance of this decision. Following the economic crisis of 2008, the secondary debt market ballooned with massive portfolios of defaulted loans changing hands for fractions of the original principal. In jurisdictions which found these purchasers to be debt collectors, these portfolios came with a large burden of ensuring compliance with the myriad rules and regulations under the FDCPA. By holding that these entities are no longer subject to the FDCPA, a significant weight has been lifted from the shoulders of debt buyers. However, it should be noted that this ruling does not affect attorneys retained by the debt buyers, and thus they must remain attentive to all FDCPA requirements.