Supreme Court Attacks FDCPA – Erodes Definition of Debt Collector

The Supreme Court has recently issued rulings very harmful to people with debt collectors harassing or suing them. Its ruling in Henson et al. v. Santander Consumer USA, Inc., No. 16349 (Slip Op. 6-12-17) (“Santander”), seems to try to negate application of the Fair Debt Collection Practices Act (FDCPA) to the vast majority of debt collectors. I expect this decision will make it far more difficult for debt defendants to obtain legal representation and will cause debt collectors to engage in more deceptive, dishonest and abusive behavior.

Fair Debt Collection Practices Act

When Congress passed the FDCPA, the corruption and destructiveness of debt collectors were so rampant that debt collection was considered a threat to the American way of life. The FDCPA was accordingly designed to prevent fraud, deception and unfairness in general in the collection of debts, with Congress going to so far as to name numerous specific actions as “per se” violations of the Act but also to include the more general description of “unfair” debt collection practices. The reason for identifying numerous specific practices, as well as including the more general rule, was to prevent debt collectors from changing the forms their actions took without changing what they were basically doing.

The Supreme Court has just reduced that Congressional intent to a farce, applying just half of the statutory definition of “debt collector” to a case and finding that, under that half of the definition, junk debt buyers were not debt collectors.

Real-Life Debt Collection

What happens in most debt collection is that creditors sell charged-off debt to debt buyers who exist entirely to collect that money by hook or by crook. Instead of hiring debt collectors to collect on debts and then paying them out of the proceeds, the creditors now get their money first and let the debt collectors take their money from the debtors. All that has happened is that nominal ownership of the debt has changed. In other words, debt collectors have assumed a different form to pursue the very same activities.

Henson et al. v. Santander Consumer USA, Inc.

The Supreme Court has said that it would not allow parties to elevate form over substance and evade the impact of laws only about twenty million times during the course of its existence. Santander cheerfully elevates form over substance to allow the same actors to perform the same abhorrent deeds that the FDCPA was designed to prevent.

One could also characterize the Court’s ruling as dishonest in that it only analyzed half of the definition of “debt collectors.” In looking at Section 1692a(6), the court examined the defining language as “any person… who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” The court’s decision then repeatedly referred to and emphasized the words “due another,” arguing that companies were only debt collectors if they fit that traditional form of collectors.

How the FDCPA Defines “Debt Collector”

Perhaps we should look at the part of the definition preceding the language in question to get a truer view of the statute’s clear intention:

The term “debt collector” means 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.

Section 1692a(6) (underlined portion is the part ignored by the Supreme Court in Santander, italicized word “any” is for emphasis)

Doesn’t it seem reasonable to read “any debts” literally, so that if the principal purpose of a business is to collect debts, they’re a debt collector? Of course it does, and that would obviously include businesses that exist to purchase debts and collect on them. The Court opinion glibly slides over that, saying that “the parties haven’t much litigated that alternative definition of debt collector and in granting certiorari we didn’t agree to consider it, either.” Santander, Slip Op. at 5. In other words, the Supreme Court agreed to hear only so much of the case as allowed them to shove a dagger into the apparent heart of the FDCPA – not enough of the case to show what the FDCPA actually intended or to do justice.

In theory, the decision in Santander leaves open the possibility that this “alternative” definition would extend the meaning of “debt collector” to junk debt buyers. On the other hand, the decision looks to me like a court in search of a justification for a desired outcome, and it has to be viewed as a negative indication for the Court’s integrity. Particularly in the context of its decision in Midland Funding, LLC v. Johnson, No. 16-348 (Slip Op. 5-15-17) (see my article, “Opening the Floodgates of Bad Claims”), it shows actual hostility to the laws that protect consumers from debt collectors and a willingness to engage in intellectually dishonest games to destroy them. As a practical matter, it will likely be several years before the Supreme Court revisits the definition of “debt collector” and applies the entire definition to the question of junk debt buyers.

Pleading that a Junk Debt Buyer is a “Debt Collector”

The Supreme Court passed over the part of the definition of debt collector that defined businesses in terms of their “principal purpose” in favor of the “regularly collected” language. Why? Probably because debt defendants have normally found it very easy to prove that a company “regularly collected” debts – in fact, under prevailing Eighth Circuit law, for example, if a law firm represents collectors in as few as three to five cases per year it is considered to be “regularly collecting” debts. Under fact pleading rules, one must plead facts constituting a basis for your legal conclusion. So debt defendants routinely allege something like the following:

Heartless, Ruthless and Merciless, Attorneys at Law, represent debt collectors in dozens of lawsuits attempting to collect debts per year and are, accordingly, debt collectors, and

Heartless Debt Collector, Inc., regularly sues persons for debts purchased after default…

In other words, debt defendants have typically used the “regularly collected” language because it is easy to demonstrate as a matter of public record. Establishing a business’s “principal purpose” will be much more difficult. My attempts to find an authoritative definition for “principal purpose” of a business turned up zero cases. While I’m confident that there must be some cases that address the issue, it is certainly not many. The term “principal purpose” is frequently used in judicial decisions, but its use is primarily generic, as a synonym for “main” or “major.” I found no cases quantifying the term in any way.

The junk debt buyers, who purchase billions of dollars of debt for no other purpose than to collect it in any way they can, will argue that their “principal purpose” is to “service” that debt. In their lexicon that really means extort payment in as many ways, over as long a period, as possible. But they will claim all manner of beneficial purposes for their activities, and this will alter the nature of the proof required to establish that the company is a debt collector. Rather than being a matter of public record, information regarding a business’s “principal purpose” will be in the possession of the debt collector – and that means that parties attempting to obtain that information will encounter the same series of stone walls, delays and unethical and oppressive litigation strategies they encounter in all their other discovery attempts.

Considering the current ideology and integrity of the Supreme Court, of which debt collectors are very well aware, who knows what the courts will officially “believe?” As a debt defendant, you must now allege and attempt to prove that the debt collector’s main business is to collect debts, but the judicial wind will be in your face.

What Debt Defendants Should Do

Debt defendants have all the same defenses to debt lawsuits they ever did – or almost all of them. Santander applies very little to the defense of debt suits.

On the other hand, many and perhaps most lawyers are going to be scared away from taking debt cases. Many lawyers who have not closely examined Santander will simply regard the FDCPA as not applying to junk debt buyers – and that is almost all the debt collectors in litigation these days. These lawyers will decline to take debt defense cases or will charge much more, and accomplish much less, than they would have, because they will not think they can counterclaim on your behalf. Lawyers who have closely examined Santander and see the same things I do will have to charge more for their services and warn clients that chances of prevailing are not as good as they used to be.

This means that far more debt defendants will be on their own. The only way many of them will be able to have a defense at all will be if they defend themselves.

If you are currently involved in a debt lawsuit – with or without a lawyer, or as a lawyer on behalf of clients – and have a counterclaim, you should expect to see a motion to dismiss based on Santander. I believe you will want to amend your counterclaim to include the “principal purpose” language mentioned above. You will also need to conduct discovery designed to prove the company’s principal purpose.