In 2012, a group of debtors filed a class action lawsuit against a Santander Consumer USA Holdings Inc., a Dallas-based debt buyer specializing in auto loans. Santander had bought the debtors’ loans from other holders and was attempting to collect them. The debtors claim Santander was violating the Fair Debt Collection Practices Act by bypassing some debtors’ attorneys and by misrepresenting how much some debtors owed.
Their complaint was dismissed, and the dismissal was upheld by the 4th Circuit Court of Appeals. It’s now before the U.S. Supreme Court. Amazingly to many, the lawsuit was dismissed not because Santander proved it hadn’t violated the FDCPA but because it showed it didn’t have to.
You see, Santander Consumer USA Holdings is a debt buyer — part of a $4.4-billion business, based on last year’s revenue. Debt buyers don’t originate loans, and they don’t collect on the originator’s behalf like traditional collection agencies. Instead, they buy the debt itself and collect as if they own it.
Why wouldn’t a debt buyer have to follow the Fair Debt Collection Practices Act?
The reason is surprising, if straightforward. According to SCOTUSblog, the FDCPA was set up to apply only to debt collectors, not debt originators. The statute defines a debt collector as “any person who regularly collects … debts owed or due … another.”
In other words, if you are a creditor who originated a consumer loan and are collecting it yourself, you don’t have to follow the fair practices laid out in the FDCPA. Congress reasoned that debt originators’ behavior could be controlled by simple market expediency. Since loan originators are looking to lend, it’s in their interest to behave reasonably in collections. They don’t want to lose customers.
Debt collectors, on the other hand, have traditionally acted on behalf of lenders rather than lending themselves. They have no ownership interest in the debt or the account — collections is just a service they provide. Since they don’t have as much skin in the game, Congress decided they needed to be reined in.
So where do debt buyers fit in? Do they have the same incentives as debt originators, or are they more like debt collectors?
It may not matter. The definition in the statute may be definitive. Even if the justices decide that debt buyers should have to follow the FDCPA, they may not be able to rule that they do.
“Just look at the language,” Justice Elena Kagan said to the plaintiffs’ attorney. “Can you come up with a sentence that points to your reading?”
“I acknowledge that may not be the first interpretation that leaps to mind,” he replied.