June 12, 2017
Consumer Finance Practice
Henson v. Santander: Resolving Circuit Split,
Supreme Court Holds Debt Buyer Not a Debt
Collector under FDCPA
By: P. Russell Perdew and Jason Julien
The U.S. Supreme Court in Henson v. Santander Consumer USA, Inc., 2017 WL 2507342, ruled that
purchasing and then collecting a defaulted debt does not, standing alone, make an entity a “debt
collector” as defined by the Fair Debt Collection Practices Act. But the Court’s opinion was narrow;
it explicitly declined to address whether a debt buyer could qualify as a debt collector under other
provisions of the FDCPA. Thus, while the decision eliminates one potential argument against debt
buyers, there are other arguments for plaintiffs or regulators to seek to apply the FDCPA to debt buyers.
Issue: Is a consumer-finance company that purchases and collects defaulted debt a “debt
collector” under the FDCPA?
Plaintiffs received auto loans from CitiFinancial Auto and later defaulted on those loans. After selling
plaintiffs’ cars for less than the unpaid balance, CitiFinancial sold the remaining debts to Santander,
which attempted to collect, and plaintiffs later sued Santander alleging its collection efforts violated
the FDCPA.
Santander moved to dismiss arguing that it was not a debt collector under the FDCPA because it
was collecting the debt for itself rather than another. The statute regulates the conduct of debt
collectors, which it defines as a business either “the primary purpose of which is the collection of
any debts” or that “regularly collects or attempt to collects … debts owed or due … to another.” 15
U.S.C. § 1692a(6). Santander argued that it was not a debt collector because the primary purpose of
its business was not debt collection (Santander also originates and services loans) and because here it
was not collecting debt owed to another.
Plaintiffs argued Santander should be considered a debt collector primarily because Santander
acquired plaintiffs’ loans after plaintiffs defaulted. Plaintiffs’ argument relied on negative implication.
Specifically, plaintiffs argued that the FDCPA excludes from the definition of “creditor” entities that
acquire defaulted debts “solely for the purpose of facilitating collection of such debt for another.” 15
U.S.C. § 1692a(4). Plaintiffs also noted while the statute excludes from the definition of debt collectors
entities (typically loan servicers) that collect debts for others, that exclusion only applies to entities
that begin servicing before the debt is in default. 15 U.S.C. § 1692a(6)(F). Plaintiffs argued these
provisions show an intention to include within debt collectors entities that purchase debts after those
debts default.
Fourth Circuit: Santander is not a debt collector because it owned the debt.
The district court concluded that Santander was not a debt collector and dismissed the case, and
the Fourth Circuit affirmed. The Fourth Circuit reasoned that plaintiffs were wrongly focused on
exceptions to various definitions but never showed that Santander met the statutory definition of
debt collector. The Fourth Circuit also held that Santander did not fall within the statutory definition
of debt collector because the “primary purpose” of its business was not debt collection; Santander
was instead a consumer-finance company that also made, serviced, and sold loans. Further, while
Santander sometimes collected loans due to other entities, it did not do so here; plaintiffs’ loans were
all owned by Santander so it was collecting its own debt.
The Fourth Circuit’s holding furthered a circuit split on the definition of debt collector. The Fourth,
Ninth, and Eleventh Circuits all found entities that acquired and collected on defaulted debts
Consumer Finance Practice | LOCKE LORD QUICK Study
June 12, 2017
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were not debt collectors, while the Third, Fifth, Sixth, and Seventh Circuits had reached different
conclusions. See Schlegel v. Wells Fargo Bank, N.A., 720 F.3d 1204, 1209 (9th Cir. 2013) (“Wells Fargo’s
collection efforts in this case relate only to debts owed to itself”); Davidson v. Capital One Bank (USA),
797 F.3d 1309, 1311 (11th Cir. 2015) (affirming dismissal); but see FTC v. Check Investors, Inc., 502 F.3d
159, 171-73 (3rd Cir. 2007) (“Congress has unambiguously directed our focus to the time the debt was
acquired in determining whether one is acting as a creditor or debt collector under the FDCPA”);
Miller v. BAC Home Loans Servicing, L.P., 726 F.3d 717, 722 (5th Cir. 2013) (defendant was debt
collector); Bridge v. Ocwen Fed. Bank, FSB, 681 F.3d 355, 359 (6th Cir. 2012) (same); Ruth v. Triumph
P’ships, 577 F.3d 790, 796 (7th Cir. 2009) (same).
Supreme Court: Purchasing and collecting on a defaulted debt does not, by itself, make an
entity a debt collector.
The Court agreed with the Fourth Circuit that once Santander purchased the defaulted debt, it
was collecting its own debt and not a debt due to another, so the collection activity did not render
Santander a debt collector. Henson, 2017 WL 2507342, at * 3. The Court rejected the argument that
purchasing a debt after it is in default automatically makes the entity a debt collector. While the
statute excludes servicers who begin servicing before default from the definition of debt collectors,
that doesn’t imply that purchasers who acquire the debt after default are debt collectors. The key
question was whether the defendant was collecting for itself of another. Id. at *6 (“under the definition
at issue before us you have to attempt to collect debts owed another before you can ever qualify as a
debt collector”) (emphasis in original).
The Court also rejected the policy arguments advanced by the petitioners, which focused on how
Congress may have worded the statute differently if it had known of the increased prevalence of debt
buyers. The Court ruled that such policy arguments were properly directed at Congress rather than
the Court. Id. (“it is never our job to rewrite a constitutionally valid statutory text under the banner
of speculation about what Congress might have done had it faced a question that, on everyone’s
account, it never faced.”).
Impact: Companies may be shielded from FDCPA claims arising from loans they own.
The Court’s ruling should help defendants where an FDCPA claim arises from a loan that has been
purchased by the defendant prior to debt-collection efforts, and overrules contrary holdings in
four Circuit Courts of Appeal. But the opinion was narrow. The Court explicitly declined to address
whether debt buyers could be considered debt collectors based on a finding that “the principal
purpose” of their business is “the collection of any debts”, or whether debt buyers who also service
loans held by other entities could be found to “regularly collect[]” debts owed to others. Henson,
2017 WL 2507342, at *3, citing 15 U.S.C. § 1692a(6). This ambiguity gives future litigants arguments that
debt buyers may still be debt collectors depending on that entity’s mix of business lines. So, FDCPA
litigation against debt buyers will likely continue, but at least one argument has been eliminated.
For more information on the matters discussed in this Locke Lord QuickStudy, please contact the authors.
P. Russell Perdew | 312-443-1712 | [email protected]
Jason Julien | 312-443-0202 | [email protected]
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