Supreme Court grapples with definition of 'debt collector'

Supreme Court grapples with definition of 'debt collector'
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The Supreme Court wrestled Tuesday with whether federal regulations for debt collectors should extend to companies that purchase debts.

Justice Elena Kagan wanted to know why Santander Consumer USA, the company at the center of the case, should no longer be considered a debt collector that’s regulated just because it purchased the auto loan debts it had been hired by CitiFinancial to collect.

“What happened in between the time when your client serviced the debt and the time when your client purchased the debt that in any way changes the relationship with the borrower such that Congress wouldn’t be concerned any longer with its behavior?” she asked the company’s attorney, Kannon Shanmugam.


Because Santander purchased a $3.5 billion portfolio of loans from CitiFinancial, the company claims it no longer qualified as a debt collector under the Fair Debt Collection Practices Act (FDCPA), which gives the Consumer Financial Protection Bureau authority to regulate debt collectors.

Lenders who initiate and collect their own loans are exempt from these regulations.

But Ricky Henson and other borrowers, who filed a class action lawsuit against the company, disagree with Santander’s claim that it is now exempt.

They claim Santander violated the FDCPA when it tried to collect debts it allegedly knew were set to be dissolved as part of a settlement in a separate class action the borrowers had brought against CitiFinancial. 

FDCPA defines a debt collector as someone “who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” 

Henson’s attorney Kevin Russell argued that “owed” is ambiguous.

“It is a participle that can both be a past participle, referring to a prior time frame, or a present participle, referring to the present,” he said. 

Kagan pressed him on this interpretation. 

“Mr. Russell, do you have a few examples — I suspect you've thought of this — just of sentences which use the word ‘owed’ to mean what you want it to mean in this case, without any other context clues?” she asked. 

Russell admitted his client’s interpretation is not the first that “leaps to mind,” but he said it’s “not unambiguous.” 

“Well, usually, when we think about ambiguous phrases, you know, we can say, well, you could say this sentence and then it would mean X. Or you could say this sentence and then it would mean Y,” Kagan said. 

“But my problem when I think about this word is that I can never get it to mean what you want it to mean.”

Shanmugam, meanwhile, argued that Santander shouldn’t be considered a debt collector because it has an incentive to maintain a business relationship with the former CitiFinancial customers.

“And, notably, at the point at which we acquired essentially the remainder of Citi's auto lending business, we really stepped into Citi's shoes in a practically significant way,” he said.

But it was an argument Chief Justice John Roberts didn’t seem to buy.  

“I mean you were an entirely different business than the person in whose shoes you stepped … I don't see why you have the same incentives to maintain their goodwill,” he said. 

Shanmugam countered that Santander has more of an incentive to maintain the goodwill of CitiFinancial’s customers than the “fly-by-night debt collectors” Congress intended to regulate.

“We could have an incentive to try to market other financial products to their customers,” he said. “And, again, the only sense in which we were different from Citi, was that first, as you say, we didn't originate the loans, and second, we, again, stepped into the shoes of the relationship at a later time.”

The court’s newest member, Justice Neil Gorsuch, did not ask any questions in the hourlong arguments Tuesday.