In June, the United States Supreme Court handed down its decision in Henson v. Santander Consumer USA, Inc., holding that entities who regularly purchase debts originated by someone else and then seek to collect those debts for their own account are not “debt collectors” subject to the FDCPA Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718, 198 L. Ed. 2d 177 (2017). Drafted by its newest Justice, Neil Gorsuch, the decision appears on its face to be a game-changing decision for creditors. Or is it?
The facts and issue before the Court were relatively simple: Santander purchased defaulted auto loans originated by CitiFinancial Auto after which Santander sought to collect raising the question of whether Santander was a debt collector and subject to the FDCPA. Gorsuch said no. Focusing on the statutory language, he noted the FDCPA applies to those who regularly collect debts owed to another, so its plain meaning was the FDCPA was focused on third-party collections. In broad language, Gorsuch wrote that definition of debt collector did not “suggest that we should care how a debt owner came to be a debt owner—whether the owner originated the debt or came by it only through a later purchase. All that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for ‘another.’” Moreover, Gorsuch refused to countenance a counter-argument suggesting the FDCPA intentionally exempted loan originators, finding the Act was focused on the “present (not past) debt relationships.” Finally, Gorsuch noted even the definition of creditor excluded only assignees who sought to collect for another, meaning a buyer of defaulted debt is a creditor under the FDCPA.
I was frankly surprised by the broad nature of the ruling because based on the circumstances, the court could have split hairs to arrive at a way to prevent Santander, generally a loan originator, from FDCPA liability. In 2010, Santander acquired $3.2 billion of CitiFinancial Auto loan assets, some of which may have been loans in default. As such, Santander did not fall into the “traditional” definition of a debt buyer – it was not in the business of buying entirely defaulted debt.
Notwithstanding, decisions are already coming down in an effort to get around the decision. Just two weeks ago, in our federal district court, a judge held the servicer of a debt buyer (a wholly owned subsidiary of the debt buyer bearing the same name) was a “collection agency” because it collected on chargedoff debt for owners of debt – the debt buyer. In another case, the court made a point of finding the decision was narrow because it did not address the “principal purpose … is the collection of any debts.” The court reasoned because the debt buyer admitted its purpose was buying defaulted debts and collecting on them, they were debt collectors covered by the FDCPA.
In a ruling that has gotten less attention but one I believe has more impact upon us as lawyers was the unanimous Supreme Court decision in Kokesh v. S.E.C., 137 S. Ct. 1635, 198 L. Ed. 2d 86 (2017). In that case, the Supremes found the five-year limitations period applies when a government agency seeks disgorgement. This is potentially important as the CFPB has argued no statute of limitations applies to claims it brings in administrative enforcement actions, such as those suffered by Hanna and a host of other participants in our industry. Justice Sotomayor noted statutes of limitations are “vital to the welfare of society.” It is sad we need the Supreme Court to weigh in on such basic concept of justice but nonetheless a cause for hope.
All of us maintain policies and procedures, are subjected to audits and maintain the highest efforts to work with consumers. But it is important to note policies are developed in response to events, and circumstances to correct oversights or to put into black and white a practice you deem critical. In other words, at some point in the past, you did not have a policy in many instances for that specific item. Perhaps it wasn’t an issue then, but is now. Perhaps it was created in response to a perceived error. But the CFPB does not look at things that way. They want to reach back into the time when what you were doing was not improper (or in many instances never was) to extract a press release by living in the past. Kokesh stands for the proposition that such a manner of doing business helps no one, rights no wrongs nor makes anyone truly whole.
In Henson, Gorsuch noted “[d]isruptive dinnertime calls, downright deceit, and more besides drew Congress’s eye to the debt collection industry.” I think that is a prescient comment, one regulators should take to heart: Get the truly bad actors but work with the good ones to make our system better and fairer for all participants. Do Henson and Kokesh solve all our problems? Absolutely not. However, do they seem to point to a more common sense approach to consumer protection? There, I think the answer is a firm yes.
Fred N. Blitt, Esq., is a partner with Blitt and Gaines, PC in Illinois and Couch, Conville and Blitt in Louisiana. He is past president of NARCA.