(CN) – In the first opinion authored by newcomer Justice Neil Gorsuch, the Supreme Court ruled Monday that a bank’s collections group didn’t skirt the law while collecting on delinquent car notes because it qualifies as a creditor, not a debt collector, after buying the loans.
At issue is the question of whether the bank Santander Consumer USA qualifies as a “debt collector,” which would make it subject to the terms of the Fair Debt Collection Practices Act, or a “creditor,” which would render it immune from the act’s constraints.
Though Santander considers itself a creditor, it faced a class action led by Ricky Henson because it bought a portfolio of auto loans from CitiFinancial, a qualified debt collector subject to the FDCPA.
The lower court granted Santander’s motion to dismiss the suit, finding that Santander owned the debts and was collecting them on its own behalf, therefore making it a creditor rather than a debt collector and freeing it from the boundaries of the FDCPA.
The Fourth Circuit affirmed and the plaintiffs appealed to the U.S. Supreme Court, which agreed in January to take up the case.
At oral arguments in April, Justice Elena Kagan held Santander’s attorney on his attempt to distance his bank from the federal regulation.
“What happened in the time between 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?” Kagan asked.
Kannon Shanmugam, an attorney with the firm Williams & Connolly, argued that after Santander purchased CitiFinancial’s loan portfolio, it no longer qualified as a debt collector because lenders who initiate and collect their own loans are exempt from regulations under FDCPA.
“Notably, at the point at which we acquired essentially the remainder of [CitiFinancial’s] auto lending business, we really stepped into [CitiFinancial’s] shoes in a practically significant way,” Shanmugam said. “At that point, we took over the business and it was as if we were the original creditor.”
Chief Justice John Roberts did not appear convinced.
“But you were an entirely different business than the person in whose shoes you stepped,” Roberts said. “I don’t see that. And they’ve already got the loans. I don’t see why you have the same incentives to maintain their goodwill.”
However, Santander overcame Roberts’ skepticism, as the Supreme Court ruled unanimously Monday that it can collect debts that it bought without triggering the FDCPA’s constraints on debt collectors.
In his first opinion for the high court since being confirmed in April, Justice Neil Gorsuch narrowed the underlying question: “Does the Act treat the debt purchaser … more like the repo man or the loan originator?”
“All that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for ‘another,’” Gorsuch wrote. “And given that, 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.”
The Supreme Court’s decision hinged on the fact that the FDCPA defines debt collectors as those who regularly try to collect debts “owed [to] another.”
“For while the statute surely excludes from the debt collector definition certain persons who acquire a debt before default, it doesn’t necessarily follow that the definition must include anyone who regularly collects debts acquired after default,” the opinion states. “After all and again, under the definition at issue before us you have to attempt to collect debts owed another before you can ever qualify as a debt collector.” (Emphasis in original.)
The plaintiffs in the case argued that if Congress had been aware of defaulted debt buyers like Santander when it enacted the law, it would have treated them like traditional debt collectors.
Gorsuch rejected the argument and took the opportunity to explain the court’s role.
“While it is of course our job to apply faithfully the law Congress has written, it is never our job to rewrite a constitutionally valid statutory text under the banner of speculation about what Congress might have done had it faced a question that, on everyone’s account, it never faced,” he wrote.