Definition of Debt Collector under the FDCPA - Henson v. Santander Consumer USA Inc

 Summary

This is a discussion of the legal definition of a “debt collector” under the Fair Debt Collection Practices Act (FDCPA). The meaning of debt collector is important because it determines the applicability of certain provisions of the FDCPA, which prohibit debt collectors from engaging in abusive, harassing, and unfair debt collection practices. The document also discusses the 2017 Supreme Court case Henson v. Santander Consumer USA Inc., which addressed the narrow question of whether debt buyers who regularly collect debts are considered debt collectors under the FDCPA. The Court held that they are not, as long as their principal business purpose is not debt collection. However, the Court did not address the broader question of whether debt buyers who are not original creditors may be subject to the FDCPA.

A debt buyer who is a defendant in a FDCPA suit may claim its debt collection activities are exempt from the requirements of the Fair Debt Collection Practices Act (“FDCPA”) 15 U.S.C. § 1692, et seq., by reason of the holding in Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718 (2017) relating to the meaning of the term “debt collector.” Although debt buyers are not original creditors, neither are they debt collection agents. These debt buyers are, in fact, collecting debts they legitimately purchased and own. 

The importance of “debt collector”

The statutory definition of a “debt collector” is central to the application of the FDCPA’s main debt collection prohibitions:

15 U.S.C. § 1692d - Harassment or abuse.

“A debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt.”

15 U.S.C. § 1692e - False or misleading representations

“A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.”

15 U.S.C. § 1692f - Unfair practices

“A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt.”

Meaning of “debt collector”

The general meaning of “debt collector” is found in 15 USC 1692a(6),

“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 . . . the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts . . . such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests.” 

Thus, 15 USC 1692a(6) provides several alternative definitions of “debt collector.”

(1) a person whose principal business purpose is to collect debts; 

(2) a person who regularly collects debts owed to another; 

(3) a person who collects their own debts by using a name other than their own as if they were a debt collector, or;

(4) a person whose principal business purpose is to enforce a security interest.

“The statutory definition of "debt collector" thus has two subcategories. It includes any person who: (1) uses an instrumentality of interstate commerce or the mails in "any business the principal purpose of which is the collection of any debts"; or (2) "regularly collects or attempts to collect . . . debts owed or due or asserted to be owed or due another." This second subcategory of debt collectors refers back to a group specifically excluded from the Act's definition of creditors — those who receive "an assignment or transfer of a debt in default" for the purpose of "facilitating [the] collection of such debt for another."

“The definition of debt collector also contains certain enumerated exclusions, one of which is relevant here:

“The term [debt collector] does not include . . .

“(F) any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity . . . (iii) concerns a debt which was not in default at the time it was obtained by such person . . . .

§ 1692a(6)(F)(iii) (emphasis added).

“We have held that "[f]or purposes of applying the Act to a particular debt, these two categories — debt collectors and creditors — are mutually exclusive." Schlosser, 323 F.3d at 536. We have also observed, however, that "for debts that do not originate with the one attempting collection, but are acquired from another, the collection activity related to that debt could logically fall into either category." Id. Schlosser noted that in such a case — one involving a debt originated by another and subsequently acquired by the entity attempting collection — "the Act uses the status of the debt at the time of the assignment" to distinguish between a debt collector and a creditor. Id.

“The Act draws this distinction in a rather indirect way, however — by the exclusionary language, quoted above, in the statutory definitions of creditor and debt collector. That is, the definition of creditor excludes those who acquire and attempt to collect a "debt in default," § 1692a(4) (emphasis added), while the definition of debt collector excludes those who acquire and attempt to collect "a debt which was not in default at the time it was obtained," § 1692a(6)(F) (emphasis added). So one who acquires a "debt in default" is categorically not a creditor; one who acquires a "debt not in default" is categorically not a debt collector.”

“Thus, we held in Schlosser that the Act "treats assignees as debt collectors if the debt sought to be collected was in default when acquired by the assignee, and as creditors if it was not." 323 F.3d at 536; see also Bailey v. Sec. Nat'l Servicing Corp., 154 F.3d 384, 387 (7th Cir. 1998) ("The plain language of § 1692a(6)(F) tells us that an individual is not a `debt collector' subject to the Act if the debt he seeks to collect was not in default at the time he purchased (or otherwise obtained) it."). We explained that "[f]ocusing on the status of the obligation asserted by the assignee is reasonable in light of the conduct regulated by the statute," which generally covers debt collection, not debt servicing:”

McKinney v. Cadleway Properties, 548 F.3d 496, 500-01 (7th Cir. 2008)

In Davidson v. Capital One Bank (USA), N.A., 797 F.3d 1309, 1311 (11th Cir. 2015), the court stated:

“the amended complaint's factual matter establishes that Capital One's collection efforts in this case related only to debts owed to it and that debt collection is only some part of, and not the principal purpose of, Capital One's business. See id. In short, Capital One's activity, as alleged by Davidson, is not the activity of a “debt collector” under the FDCPA, and Davidson cannot state a claim under the Act. We therefore affirm the district court's dismissal of Davidson's amended complaint.”

The limited scope of Henson v. Santander Consumer USA Inc.

Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718 (2017) involved only the second statutory definition of “debt collector.”

“The parties agree, too, that in deciding whether Santander's conduct falls within the Act's ambit we should look to statutory language defining the term "debt collector" to embrace anyone who "regularly collects or attempts to collect ... debts owed or due ... another." 15 U.S.C. § 1692a(6).”

Henson, supra, at 1721

The Supreme Court reviewed the second statutory definition of “debt collector” but expressly declined to consider the first definition.

“Second, the parties briefly allude to another statutory definition of the term "debt collector" — one that encompasses those engaged "in any business the principal purpose of which is the collection of any debts." § 1692a(6). But the parties haven't much litigated that alternative definition and in granting certiorari we didn't agree to address it either. . . we can turn to the much narrowed question properly before us.” [emphasis added]

Henson, supra, at 1721

Focusing only on the second statutory definition and intentionally disregarding the first definition, the court concluded,

“ . . . . it would seem a debt purchaser like Santander may indeed collect debts for its own account without triggering the statutory definition in dispute, just as the Fourth Circuit explained.” 

Henson, supra, at 1722

According to the website for Santander Consumer USA Inc., the company’s primary business purpose appears to be automobile financing and not debt collecting.

“At Santander Consumer USA (SC), we help consumers get financing for new and used vehicles so they can get to home, school, work and anywhere they want or need to be. We are committed to providing superior service to our customers and partnering with them to improve their overall financial well-being. . . . “ https://santanderconsumerusa.com/our-company

The debtor in Henson neither alleged nor argued that Santander Consumer USA’s “principal business purpose is to collect debts” (Henson et al v. Santander Consumer USA, Inc. et al, Cause No. 12 -CV-3519, USDC Maryland, Original Complaint, Docket #1) and the Supreme Court did not reach that issue. Debt collection appears to have been an ancillary and subordinate business purpose of Santander.

The meaning of “debt buyers”

The term “debt buyer” does not appear in the FDCPA. Purchasing, collecting, and reselling defaulted consumer debt is a commercial practice that arose after the FDCPA was enacted in 1977. 

“Debt buyers include firms whose business model focuses on the purchase of debt, as well as collection agencies and collection law firms who collect both on debt owned by others as well as debt they purchase and own themselves. In addition, some firms are passive debt buyers—investors that buy and resell portfolios but do not engage in actual debt collection themselves.”

Government Accounting Office report GAO-09-748 “Credit Cards: Fair Debt Collection Practices Act Could Better Reflect the Evolving Debt Collection Marketplace and Use of Technology” (10/21/2009)

The FDCPA is commonly viewed as distinguishing between original creditors and third-party collection agencies, but the statute is more nuanced than that. The Henson decision did not completely resolve the status of third-party debt buyers who were neither original creditors nor debt collection agencies. 

The Henson opinion was procedurally and factually restricted. Hanson considered only the second statutory definition of “debt collector,” and concluded that passive debt buyers are more like original creditors than they are to collection agencies, and that the FDCPA did not apply to the specific facts and procedural case status presented for Supreme Court review.

A common understanding of Henson is that debt buyers who purchase defaulted debt, and then seek to collect the debt for themselves, are not debt collectors under FDCPA. 

This is the oversimplified interpretation offered by the plaintiff herein.

However, Henson did not examine the relationship between passive debt buyers and the first statutory definition of “debt collector” in 15 USC 1692a(6). 

“[A]ny 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 . . . . “ 

This definition of “debt collector” shifts the focus from the debt ownership issue to the question of business purpose.

As the District Court observed in Hewitt v. 21st Mortg. Corp., Civ. No. 16-5719, 2017 U.S. Dist. LEXIS 131447 (D. N.J. Aug. 15, 2017) 

"21st Mortgage Corporation is a company primarily engaged in the business of loan origination. In connection with that business, they can purchase debt, and attempt to collect on that debt, without acquiring the status of a "debt collector" and subjecting themselves to the regulations of the FDCPA . . . Defendant [21st Mortgage Corporation] is not a debt collector under the FDCPA and is not required to abide by its regulations in communications with debtors." [emphasis added]

Bank of NY Mellon Trust Co. NA v. Henderson, 862 F. 3d 29 (DC Cir. 2017) held:

“The Bank is neither type of debt collector. There is no evidence to indicate the Bank's "principal” business is debt collection. Nor is the debt the Bank is seeking to collect "due another"; on the contrary, the debt is due to the Bank as the current holder of the Note and Deed of Trust. That the debt was already in default when the Bank purchased it did not make the Bank a debt collector.”

Debt buyers are not automatically “debt collectors” subject to the FDCPA, but neither are they automatically excluded.

Conclusion

The Henson decision focused only on whether a debt buyer qualified as a “debt collector” under the portion of the definition that covers  “any person who … regularly collects or attempts to collect ... debts owed or due ... another.”  The Henson decision did not address –– and specifically emphasized that it was not addressing –– whether a debt buyer whose “principal purpose … is the collection of any debts[.]”  See Henson v. Santander Consumer USA Inc., 582 U.S. 79, 82 (2017) (“[T]he parties briefly allude to another statutory definition of the term ‘debt collector’—one that encompasses those engaged ‘in any business the principal purpose of which is the collection of any debts.’ § 1692a(6). But the parties haven't much litigated that alternative definition and in granting certiorari we didn't agree to address it either.”).

 

Subsequent decisions in which courts have considered the question of whether a debt buyer that purchases debts in default for the purpose of collecting them, even through the retention of a third party, like a law firm, are “debt collectors” under § 1692a(6), have held that they are.  For example, in Reygadas v. DNF Assocs., LLC, 982 F.3d 1119 (8th Cir. 2020), the Eighth Circuit analyzed how other Circuits applied the “principal purpose” definition of “debt collector” in the wake of Henson as follows:

 

“. . . . DNF urges us to construe the FDCPA as covering independent debt collectors when they perform collection actions for a fee, but not when they collect consumer debt purchased for their own account. The argument simply ignores the “principal purpose” definition, which applies to “any business” -- which obviously includes a debt buyer such as DNF -- whose “principal purpose ... is the collection of any debts.” As the Third Circuit observed in its first post-Henson decision:

 

“[The debt buyer defendant's] admitted sole business is collecting debts it has purchased. It uses the mails and wires for its business. ... ‘Any debts’ [in the principal purpose definition] does not distinguish to whom the debt is owed. And it stands in contrast to ‘debts owed or due ... another,’ which limits only the ‘regularly collects’ definition. ... Asking if [the defendant] is a debt collector is thus akin to asking if Popeye is a sailor.

 

“Tepper v. Amos Fin., LLC, 898 F.3d 364, 370 (3d Cir. 2018); accord Barbato v. Greystone All., LLC, 916 F.3d 260, 269 (3d Cir.), cert. denied, ––– U.S. ––––, 140 S. Ct. 245, 205 L.Ed.2d 129 (2019); Davidson, 797 F.3d at 1316 n.8.4 DNF's principal argument on appeal is that § 1692a(6) does not apply to “passive” debt buyers who hire independent law firms and collection agencies to collect the debts they purchase. The relevant definition of “collection” is “the act or process of collecting,” DNF explains, citing Webster's Ninth New Collegiate Dictionary. The act or process of collecting requires an affirmative act of collecting, which requires interaction with debtors. The principal purpose of a passive debt buyer is “profiting on its investment,” with no direct “interaction” with consumers.

 

“The word “interaction” is conspicuously absent from the statute. We can agree a business's “purpose” is shown by its actions. But the FDCPA's principal purpose definition does not require the debt collector to “collect” debts; it must have as its “principal purpose ... the collection of any debts.” Read together, the words “purpose” and “collection” require an act whose purpose is collection. The foreseeable and logical consequence of hiring lawyers and debt collection agencies to collect debts DNF has purchased is itself evidence of purpose. For example, a hospital's purpose is providing healthcare to patients, even though it relies on independent physicians and other entities to provide the care. And if that is DNF's exclusive method of doing business, as the summary judgment record established, then its “principal” purpose is “the collection of any debts.”

 

As the Third Circuit stated this rather obvious deduction:

 

[A]n entity that has the “collection of any debts” as its “most important” “aim” is a debt collector under this definition. ... As long as a business's raison d’être is obtaining payment on the debts that it acquires, it is a debt collector. Who actually obtains the payment or how they do so is of no moment.

 

Barbato, 916 F.3d at 267; see McAdory v. M.N.S. Assocs., LLC, 952 F.3d 1089, 1094 (9th Cir. 2020) (in using the noun “collection,” Congress “did not specify who must do the collecting or to whom the debt must be owed”).

 

Reygadas, 982 F.3d at 1124–25.

 

Similarly, in Wheeler v. Midland Funding LLC, No. 15 C 11152, 2020 WL 1469449 (N.D. Ill. Mar. 26, 2020), the U.S. District Court for the Northern District of Illinois stated the following with regard to whether debt buyer Midland Funding is a “debt collector” in the wake of Henson.

 

“Defendants have presented no evidence that Midland Funding has any business purpose other than to purchase and collect debts. For that reason alone, they are not entitled to summary judgment on the issue. Defendants’ other arguments also fail. That Midland Funding (and Encore, for that matter) does not have employees is not conclusive—that does not mean that these companies cannot engage in collection activities. For example, it cannot be said that Midland Funding has no collection interaction with consumers—it sues them, and that is interaction. See, e.g., McMahon, 301 F. Supp. 3d at 884 (noting that a debt collector “interacts with consumers by filing collection lawsuits against them”). And even if Midland Funding has no direct interaction with consumers, it is not clear that is required for the “primary purpose” definition of a debt collector, so long as the collection is done on its behalf. See Barbato, 916 F.3d at 267; Janetos v. Fulton Friedman & Gullace, LLP, 825 F.3d 317, 325 (7th Cir. 2016) (holding that a company that is itself a debt collector may be held liable for FDCPA violations committed by another entity on its behalf); see also, e.g., McMahon, 301 F. Supp. 3d at 884 (“The Court fails to see why it should matter if the debt buyer hires a third party to actually collect its debt, i.e., to be the one who interacts with the debtor to obtain payment.”). Moreover, this Court flatly rejects the premise, on this record, that “Midland Funding does not use the mails and telephones to collect consumer debts.” (Dkt. 192 ¶ 4). Midland Funding has admitted that it “has been the plaintiff in more than 3,000 collection actions against Illinois residents” (Dkt. 148-1 at 90) and that “the mails and telephone systems” are used in connection with these lawsuits. (Dkt. 148-1 at 89–90). This certainly supports the inference that Midland Funding uses the mail or telephones to collect debts—the Court is hard-pressed to think of any way a business might engage in litigation in today's world without these tools.

 

Wheeler, 2020 WL 1469449, at *8.