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US Supreme Court mulls whether FDCPA applies to debt buyers

When the Fair Debt Collection Practices Act was first passed in 1977, a distinction was made between those who are collecting on debts owed to themselves and those collecting on behalf of other entities. The idea was that creditors who collect on their own behalf are more likely to behave. They are far less likely to use deceptive or abusive tactics, the argument goes, because the debtor is their own customer.

Debt collection agencies, on the other hand, had been known to use a variety of collection practices that are considered unfair, including the use of abusive or harassing language, calling debtors at times known to be highly inconvenient, and bypassing debtors' attorneys in violation of the law.

The FDCPA was passed to regularize what could and could not legally be done to collect a consumer debt. It prohibits debt collection calls at work and limits collection calls to certain reasonable times and places. It defines deceptive, harassing and abusive tactics that are banned. It requires debt collectors to contact debtors through their attorneys when the collector knows or could easily determine the debtor has one.

Whatever you may think about the FDCPA, it's important to understand that distinction that was made between creditors collecting their own receivables and debt collection agencies acting on behalf of others. Why? Because the FDCPA only applies to the second type.

What about debt buyers? Does the Fair Debt Collection Practices Act apply to them?

That's the question currently under consideration by the U.S. Supreme Court in a case called Henson v. Santander Consumer USA. The collector, Santander Consumer USA, is a partial subsidiary of Banco Santander, one of the European Union's largest banking concerns. In the U.S., however, Santander Consumer USA is a consumer finance company based in Dallas that specializes in auto loans.

Santander is a debt buyer, as opposed to the originator of the car loans. Debt buyers can be anyone from individuals to collection agencies who buy the rights to debt outright, often for just pennies on the dollar, instead of attempting to collect it on behalf of the original owner. And according to Santander's position in the Supreme Court case, the fact that it owns the car loans it collects means that it is exempt from the FDCPA. It doesn't have to follow the fair collections practices.

This infuriated a class of debtors whose auto loans were bought by Santander. According to a class action lawsuit filed in 2012, the debtors claim that Santander engaged in unfair debt collection practices including misrepresenting how much they owed and intentionally bypassing their attorneys.

Even if that were true, Santander contends, the FDCPA doesn't apply to it. It doesn't regulate all debt collection -- just collection by third-party debt collectors. Since it is collecting on debts it owns, it isn't required to follow that law.

The statute defines a third-party debt collector as "any person who regularly collects ... debts owed or due ... another."

"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?" She elaborated, "when I think about this word is that I can never get it to mean what you want it to mean, no matter how I construct a sentence."

"I acknowledge that may not be the first interpretation that leaps to mind," he replied.

The plaintiffs reading of the statute is that debt buyers were not considered when the law was written and should be treated like third-party debt collectors. The law explicitly contemplated the incentives -- claiming that debt originators were less prone to abuses because they stood to gain future business. The incentives of debt buyers are more like those of third-party debt collectors, so they should be treated the more like them.

Santander responded that it is not the sort "fly-by-night" concern that would use abusive tactics because it doesn't have ongoing customer accounts.

Whether the FDCPA should apply to debt buyers may be immaterial, however, if the plaintiffs cannot show that the statute says that it does apply to them.

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