A few months ago I alerted readers to a case before the U.S. Supreme Court addressing whether the Fair Debt Collection Practices Act (FDCPA) applies to buyers of defaulted debts. The FDCPA offers debtors legal options for resolving disputes with debt collectors. In Henson v. Santander, the Court unanimously sided with the debt-buyers, closing off the FDCPA for many debtors seeking relief from them. As a result, debtors are probably better off discussing their cases with a New York bankruptcy lawyer than pursuing an FDCPA action.
In Henson, the petitioners borrowed money from CitiFinancial Auto, but later on they defaulted on their loans. CitiFinancial Auto sold their loans for a tiny amount of their face values to Santander, which began collection efforts that petitioners argued violated the FDCPA. The federal district court, where the petitioners initiated the case, and the Fourth Circuit Court of Appeals sided with Santander, prompting the petitioners to appeal to the U.S. Supreme Court.
The parties and the Court narrowed the issue to whether Santander was a “debt collector” under the FDCPA or just a mere “creditor.” Under 15 U.S.C. § 1692a(6), a “debt collector” is any party that, “regularly collects or attempts to collect … debts owed or due … another.” When the law was written, Congress was apparently concerned about loan originators hiring companies to employ harsh tactics to collect debts on the originators’ behalves. The FDCPA’s authors did not contemplate a debt-collection industry springing up, buying bad debts for cents on the dollar, and then collecting on those debts just as unscrupulously. Thus, the actions of debt-owners (creditors) are not covered by the FDCPA, but third-party agents’ actions are. Santander claimed it was a debt-owner, notwithstanding its behavior.
The Court focused on the plain language of the FDCPA, noting that it seemed obvious the law targeted third-party agents, and it did not speak to how the debt owner obtained the debt, whether it bought it or originated it. The Court then cited not law but the dictionary, which is a pretty good indicator that the petitioners’ case was a lost cause, to dispatch the case. Given the unanimous opinion, it’s curious why the Court took the case at all.
The opinion for Henson v. Santander is here (pdf).
Perhaps Congress will fix the FDCPA in the future—or debt collectors might adopt new technologies to make the FDCPA obsolete—but until then, buyers of defaulted debts will undoubtedly continue their harassing practices. Unfortunately now, the FDCPA is of no avail against these businesses. If you are being hounded by a debt collector that owns your debt, then you will probably find more success turning to an experienced New York bankruptcy lawyer than an FDCPA litigator.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
