Supreme Court Case Explains Debt Buyers Are Not Debt Collectors Under FDCPA

  • Written by Collection Advisor

The Supreme Court unanimously ruled this week on an FDCPA case expected to have a major impact on debt buyers. The Court ruled that the FDCPA, enacted by Congress in 1977, does not apply to debt collection practices of a debt buyer who buys defaulted loans from a creditor.

The plaintiffs in the case of Henson v. Santander Consumer USA were four Maryland residents who defaulted on their auto loans. They sued Santander in 2012 for predatory collection practices including bypassing debtors' lawyers. But because Santander owned the debt and was servicing it, the court said Santander and companies like them couldn’t be sued under FDCPA.

The Citicorp auto loans was sold to Santander, a Dallas-based vehicle-financing and lending company owned in part by a subsidiary of Banco Santander (SAN.MC), the euro zone's second-largest bank by market value.

The 4th U.S. Circuit Court of Appeals in Richmond, Virginia threw out the lawsuit previously saying the law applied only to debt collectors, and Santander became a creditor when it purchased the loans.

The case hinged on the definitions of “creditor” and “debt collector” and whether a company that buys debt should be treated as a creditor and therefore not subject to the law.