Fair Debt Collection Practices Act: Time for an Amendment?

The Supreme Court of the United States (SCOTUS), in a unanimous opinion which was also the first opinion authored by the newest judge on the Court – Justice Neil M. Gorsuch, upheld lower courts’ decisions that certain businesses are not governed by the Fair Debt Collection Practices Act.  What does this mean?

In Henson v. Santander Consumer USA, the Court addressed situations in which a company buys debt at steeply discounted prices then works to collect from the debtor. It is not an unusual business model.  Over the past decade, companies like Santander which originally existed to assist a specific company or industry in traditional debt collection recognized an opportunity.  Many creditors are willing to package either past due accounts or judgments, which they deem uncollectable or not worth the cost of collection, and sell them to a third party.  That third party then becomes the actual creditor.

The position of a company like Santander matters because of the language of the Fair Debt Collection Practices Act (FDCPA) which was originally passed in 1977.  The collection model in existence at that time and to a large extent still in operation today involves a collection agency being retained by a creditor to undertake collection activities on behalf of the creditor.  Consumers got tired of the harassing phone calls at home, at work and at all hours, so Congress enacted the FDCPA to rein in such practices.  SCOTUS in its opinion determined that the FDCPA was not designed to deal with businesses or individuals collecting their own debt and declined the opportunity to use the powers of the court in a manner which would amend legislation.  In the opinion, the Court indicated that if Congress determines that new legislation or an amendment to existing legislation is necessary, then it can act.

For now, the take-away may well be to expect a proliferation of businesses like Santander.  If the model is lucrative enough and unrestrained, it seems a likely outcome.  And, that may well mean that there will be new legislation proposed in Congress, so stay tuned.