On June 12, 2017, the Supreme Court of the United States, in Henson v. Santander Consumer USA Inc., No. 16-349, concluded that a debt purchaser who does not regularly service debt for others but services the debt for its own account is not a “debt collector” under the FDCPA. Importantly, the Supreme Court held that even if the debt purchased was in default, it did not make the purchaser a debt collector if the purchaser did not regularly seek to collect debt “owed or due… another”. This decision will provide needed relief to mortgage investors who have been targeted in recent years in FDCPA complaints by consumers.
In Henson, the Supreme Court focused its inquiry on how to classify entities who regularly purchase debts originated by someone else and then seek to collect those debts for their own account. The Court observed that the FDCPA defines debt collectors to include those who regularly seek to collect debts owed to third parties, not on debt owners who only seek to collect the debt for themselves. Thus, a debt purchaser may indeed collect debts for its own account without triggering the statutory definition.
The Court rejected the debtors’ argument that the word “owed” is the past participle of the verb “to owe”, implying that it refers to those who regularly seek to collect debts previously “owed … another.” The Court found that past participles like “owed” are routinely used as adjectives to describe the present state of a thing. It held that considering the statutory phrase in which the word “owed” appears, i.e. “owed or due … another”— underscores this point. The Court also provided several examples how Congress routinely used the word “owed” in the FDCPA to refer to present (not past) debt relationships.
The Court also rejected debtors’ argument that a purchaser of defaulted debt who collects it for its own account is a debt collector within the meaning of the FDCPA. The Court was not swayed by the debtors’ argument that the statute excludes from the definition of “debt collector” certain persons who obtain debts before default, thus implying that the term must embrace those who regularly seek to collect debts obtained after default. The Court held that while the statute excludes from the debt collector definition certain persons who acquire a debt before default, it doesn’t necessarily follow that the definition must include anyone who regularly collects debts acquired after default. After all, under the definition at issue one has to attempt to collect debts owed another before one can ever qualify as a debt collector.
Takeaways
The Henson decision is particularly important to mortgage investors who have been targeted in recent years in FDCPA complaints by consumers. That is because Henson makes it clear that a debt purchaser that does not regularly service debts for third parties, or service loans at all for that matter, is not a “debt collector” within the meaning of the FDCPA. Thus, for example, under Henson an investor in mortgage loans (including those in default) who does not service the loans should be insulated from FDCPA claims.
It is important to note, however, that the Court in Henson specifically did not address whether a purchaser of debt (i) who regularly collects debt for third parties, or (ii) whose principal business is the collection of debt owed to third parties, is “debt collector” within the meaning of the FDCPA.
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