Henson v. Santander – Supreme Court Attacks the FDCPA

In Henson et al. v. Santander Consumer USA, Inc., (“Santander”), the Supreme Court hurt the FDCPA and attacked the rights of consumers. Its ruling means that the FDCPA will no longer apply to most debt collectors. This decision will make it far more difficult for debt defendants to obtain legal representation. And it will cause debt collectors to engage in more deceptive, dishonest and abusive behavior.

If you are facing debt collectors, you should know your rights and may need to defend yourself pro se.

Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (FDCPA) became law In 1978. Debt collectors were so corrupt and destructive  Congress they were a “threat to the American way of life.”  Congress named numerous specific actions as “per se” violations of the Act. It also included the more general descriptions of “unfair,” “unconscionable,” and “deceptive” debt collection practices as illegal actions. Congress wanted to keep 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. Its ruling in Santander guarantees more dishonest, careless and abusive debt collection techniques. It means consumers and honest businesses will support the worst scavengers in the world.

Real-Life Debt Collection

Instead of holding it for collection, creditors usually sell charged-off debt to debt buyers these days. When debt buyers buy a debt, their only purpose is to collect that money by hook or by crook. Creditors used to hire debt collectors to collect on debts and pay them out of the proceeds. Now they get their money first. 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 not allowed parties to change the form of their actions to evade the impact of laws. Santander cheerfully elevates form over substance, however. The same actors will perform the same abhorrent deeds that the FDCPA was designed to prevent.

One could consider the Court’s ruling 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 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. In the Supreme Court’s view, debts which had long belonged to another but were sold for purposes of collection, change their nature when sold. Junk debt buyers are collecting on their own debts, not debts due another.

How the FDCPA Defines “Debt Collector”

We should look at the whole definition of “debt collector” to get a truer view of the statute’s 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).

The Court ignored the underlined portion of the definition because the debt collector at issue in the case was a bank. The parties agreed that Santander’s principal purpose was not the “collection of debts.” But the Court should not have ignored that portion of the definition, as its broadness showed congressional intention to get all “functional” debt collectors. Taking note of that intent, the Court should have read “debts owed… to another” to keep their substance despite the debt’s sale. Doing so would have prevented debt collectors from changing the NATURE of the debt merely by selling it to another party. This would have honored congressional intent and protected consumers.

Why the Court Did What it Did

Why didn’t the Supreme Court look at the whole statutory definition of “debt collector?”

The surface reason was that Santander was a bank – and the parties agreed that its business was not principally collecting debts. But that’s really only the surface fact. It would not have stopped the Court from considering the entire definition to garner congressional intention. And it wouldn’t have prevented the Court from giving a reasoned decision on the whole statute anyway. The Supreme Court grants certiorari only in a very small percentage of cases, and it has had numerous opportunities to examine the whole reality of debt collection. It chose the issue it wanted to address deliberately.

Plaintiffs in FCPA cases have usually relied on the “regularly collecting” debts language because it is easier to show than “principal purpose.”

Establishing a business’s “principal purpose” will be much more difficult. Few case use the term “principal purpose” of a business. While there must be some cases that address the issue, there are not many. Courts often use the the term “principal purpose” in judicial decisions, but its use is primarily generic.  Opinions use the words  as a synonym for “main” or “major.” I found no cases quantifying the term in any way.

“Principal Purpose” Is Hard to Prove

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 they are not debt collectors. They will claim 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.

Or they will make up some other reason or claim.

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. That means that parties attempting to obtain that information will have to use discovery to find it. Thus they will encounter the same stone walls, delays and unethical and oppressive litigation techniques they encounter in 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 prove that the debt collector’s main business is to collect debts. The judicial wind will be in your face.

Reading the Supreme Court

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. The decision shows a court in search of a justification for a desired outcome – you should view it as a negative indication for the Court’s integrity.

Santander and another recent case, Midland Funding, LLC v. Johnson, No. 16-348 (Slip Op. 5-15-17) (see my article, “Opening the Floodgates of Bad Claims”), show actual hostility to the laws that protect consumers. They also show 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.

What Debt Defendants Should Do

Debt defendants have almost all the same defenses to debt lawsuits they ever did. 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 do not understand Santander will simply regard the FDCPA as not applying to junk debt buyers. That is almost all the debt collectors in litigation these days. These lawyers won’t take debt defense cases or will charge much more for them. They will accomplish much less than they would have, too, because they will not counterclaim on your behalf. Lawyers who understand Santander will charge more and warn clients that winning is less likely than it used to be.

This means that far more debt defendants will be on their own.

Expect to see a motion to dismiss based on Santander if you currently have a counterclaim under the FDCPA. 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.