Gorsuch's Purgatory: Attempting to Define Debt Collector Under the Fair Debt Collection Practices Act
| Publication year | 2019 |
Gorsuch's Purgatory: Attempting to Define Debt Collector Under the Fair Debt Collection Practices Act
Matthew Haan
Georgia State University College of Law, mhaan1@student.gsu.edu
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A whopping seventy million consumers in the United States are the subjects of debt collection activities.1 As of March 2017, debt collection was an $11.4 billion industry nationwide.2 Debt collection affects almost one-third of American consumers, and almost three-fourths of these consumers have two or more debts out for collection.3 The majority of debts originate from credit or charge cards.4 In a survey conducted by the Consumer Financial Protection Bureau (CFPB), nearly half of the consumers who were contacted
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about a debt by a debt collector indicated that they requested that the debt collector stop contacting them.5 Three-fourths of consumers in this group reported that the debt collector did not honor their requests.6 The federal Fair Debt Collection Practices Act (FDCPA) makes it illegal for debt collectors to use certain tactics and contact debtors at certain times and places and provides opportunities for harmed consumers to seek redress.7 The FDCPA, a strict liability statute, creates a private right of action that allows consumers to collect up to $1,000 in statutory damages if they can prove that the debt collector did not collect, or attempt to collect, the debts in accordance with the statute.8
In June 2017, the Supreme Court's decision in Henson v. Santander Consumer USA, Inc. made it harder for consumers to seek redress from certain entities when it definitively ruled that those who purchase debt profiles and subsequently attempt to collect on them are not debt collectors under the statute.9 The Court's analysis
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focused on one statutory definition of a debt collector as one who collects debts "owed . . . another."10 The Court reasoned that because debt purchasers become the owners of these debts, they are attempting to collect debts owed to themselves, not debts "owed . . . another."11 However, the Court addressed only one definition of debt collector under the FDCPA, thus leaving unanswered the question of whether debt purchasers are subject to the other statutory definition of debt collector. Under the other definition, a debt collector is one whose principal business purpose is the collection of debt.12 This Note analyzes the legal ramifications of the Supreme Court's decision and proposes a solution that provides clarity for consumers, debt collectors, and creditors.
Part I of this Note provides background on the FDCPA and the federal agencies charged with its enforcement.13 Part I also provides background on judicial analysis of the FDCPA before Henson v. Santander and explains the nature of the Supreme Court's decision.14 Part II analyzes the ramifications of Henson v. Santander for debtors and debt purchasers.15 Part II also analyzes how the Supreme Court's decision can affect the CFPB.16 Part III proposes and discusses a three-tiered solution that involves congressional and CFPB action and discusses what would happen if Congress and the CFPB left the solution up to the courts.17
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I. Background
Congress enacted the FDCPA in 197718 in response to congressional research that found evidence of abusive, deceptive, and unfair debt collection practices.19 The Act's main purposes are to (1) eliminate abusive debt collection, (2) protect ethical debt collectors from disadvantages, and (3) foster uniform consumer protection.20 The Act has been criticized for its lack of clarity,21 and disputes over the intended scope of coverage for the FDCPA go back at least thirty years.22
A. Who Does the FDCPA Cover?
The FDCPA is a broad statute,23 but in many respects it is also narrow.24 The Act only covers debt collectors who are collecting debts stemming from primarily personal consumer transactions.25 Congress intended for the FDCPA to apply only to debt collectors—as opposed to banks and other financial product lenders—due to the belief that financial product lenders were more likely to have repeated contact with a consumer.26
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The FDCPA defines a debt collector as "any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another."27 Put another way, a debt collector is bound to the provisions of the FDCPA if its principal purpose of business is debt collection or if they regularly collect debts owed to another entity.28
B. The Consumer Financial Protection Bureau
Before 2010, the Federal Trade Commission (FTC) served as the enforcing body of the FDCPA, and in many respects the Commission still has enforcement power.29 The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), among other things,
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created the Consumer Financial Protection Bureau (CFPB) as part of the sweeping financial reforms in the wake of the 2008 financial crisis.30 Dodd-Frank amended the FDCPA to add the Bureau to the list of agencies with the power to enforce the Act.31 The CFPB oversees federal laws that protect financial-products consumers from unfair, abusive, and deceptive acts or practices.32 It is the only consumer-focused regulatory agency, consolidating the shared power of several agencies within the federal government.33 The CFPB and the FTC share enforcement authority of the FDCPA,34 but from a practical standpoint the CFPB assumes a large role over enforcing the FDCPA and other debt collection laws.35 Since Congress established the CFPB six years ago, the agency has enjoyed success in its consumer protection goals, returning billions of dollars to consumers through enforcement actions.36 However, the Supreme Court dealt a
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significant blow to the regulatory agency when it announced that debt purchasers do not qualify as debt collectors under the FDCPA.37 The decision severely limits the reach of the FDCPA and, given the recent uncertainty surrounding the CFPB, creates new questions about the CFPB's future role in enforcing consumer protection laws.38
C. Henson v. Santander Consumer USA, Inc.
Prior to Henson v. Santander, most courts that addressed the default status of an acquired debt held that the terms "creditor" and "debt collector" were mutually exclusive, meaning that an entity can
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be either a creditor or debt collector under the statute, but not both.39 Determination of an entity's status depended on the status of the debt sought for collection: If the debt was in default, the entity was a debt collector, and if the debt was not in default, the entity was a creditor.40 The distinction between creditor and debt collector is important because creditors are not liable for the actions of third-party debt collectors under the FDCPA.41 But a debt collector can be vicariously liable for the actions of those seeking to collect a debt on its behalf.42 Following the lead of the Eleventh Circuit in Davidson v. Capital One Bank (USA), N.A., the Fourth Circuit departed from this dichotomous school of thought and laid the foundation for the Supreme Court's review of the newly-created circuit split.43
The facts setting the stage for Henson v. Santander are not unique: Four Maryland consumers each signed a retail sales contract with CitiFinancial Auto (CitiFinancial) to finance an automobile purchase.44 When the plaintiffs stopped making payments and defaulted on the contract, CitiFinancial repossessed the cars and informed each plaintiff of its intention to pursue a deficiency judgment.45 CitiFinancial later sold the plaintiffs' defaulted debts as part of a large debt portfolio to Santander Consumer USA (Santander).46 After Santander began contacting the plaintiffs in an
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effort to collect on the debts, the plaintiffs filed an action alleging that Santander violated the FDCPA in both the pursuit of the collection and the manner of pursuit.47 The Fourth Circuit Court of Appeals concluded that the defaulted status of a debt "has no bearing on whether a person qualifies as a debt collector under the threshold definition set forth in [the statute]."48
On appeal, the Supreme Court sought to answer whether the FDCPA treats a debt purchaser in this kind of scenario "more like the repo man or the loan originator."49 Ultimately, the Supreme Court found the Fourth Circuit's reasoning compelling and held that purchasers of defaulted debt do not trigger the statutory definition of a debt collector when they collect debts for themselves,50 focusing the majority of its time on a grammatical analysis of the word "another."51
One thing is for certain following Henson v. Santander: consumers and their attorneys can no longer assert that a debt purchaser is a debt collector subject to the FDCPA simply by showing that the debt was in default at the time of acquisition.52 However, it remains to be seen whether a debt purchaser of defaulted accounts can be, and will be, classified as a debt collector through a different manner.53 After all, the Supreme Court explicitly stated that it was not addressing the
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meaning and application of the other definition of debt collector that focuses on the principal business purpose.54 Although the Supreme Court focused almost entirely on a grammatical analysis of "another," a distinction or restriction does not exist for the principal purpose definition.55 Moreover, much of the FDCPA litigation has not focused on the principal business purpose prong, making potential arguments harder for consumer attorneys.56 The Supreme Court does not seem likely to address the principal business purpose argument any time soon, if ever.57 Questions about an institution like...
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