How the Supreme Court Turned Debt Collection Into a Grammar Lesson

On June 12, the Supreme Court settled a question about the status of debt buyers under the Fair Debt Collection Practices Act (FDCPA) that has been the subject of uncertainty for years: “Is a person who purchases debt for his own account a debt collector if he tries to collect that debt?” Writing for a unanimous court in Henson v. Santander Consumer USA, Justice Neil McGill Gorsuch made his Supreme Court debut by giving creditors and debt buyers a clear win, and the rest of the world a grammar lesson.

The FDCPA defines a “debt collector” as anyone who “regularly collects or attempts to collect … debts owed or due … another.” The dispute between the parties centered on the correct grammatical usage of the word “owed,” and were Mrs. Bailey (my eighth grade grammar teacher) alive, she most certainly would have sided with the plaintiffs and given Justice Gorsuch a failing grade. Fortunately for Santander, Mrs. Bailey didn’t get a vote in this case.

The facts of the case are fairly simple. Santander Consumer USA bought a portfolio of defaulted auto finance transactions from CitiFinancial Auto and proceeded to collect those accounts, now on its own behalf as the owner of the accounts. Plaintiffs asserted that Santander became a debt collector subject to the FDCPA when it purchased the portfolio from CitiFinancial Auto. Santander argued that it was not a debt collector because it owned the accounts in question, and was collecting on its own behalf. Both the District Court and the Fourth Circuit Court of Appeals agreed with Santander, creating conflict with holdings in other circuits.

Justice Gorsuch observed that by its plain terms, the definition focuses one’s attention on third-party collectors engaged by a debt owner as opposed to a debt owner collecting debts for itself. He also observed that nothing in the statute seems to concern itself with exactly how a debt owner came to be one. For purposes of the lawsuit, Justice Gorsuch and the court should only care whether the defendant regularly seeks to collect debts for its own account or whether it collects debt for “another.”

Henson, channeling Mrs. Bailey, disagreed, arguing that Santander was ignoring the tense of “owed.” The plaintiffs contended that the word “owed” is the past participle of the verb “to owe.” Who among us has thought about this since eighth grade?

If one adopted Henson’s grammatical view, it would mean the FDCPA’s definition of debt collector captures anyone who regularly seeks to collect debts previously “owed … another.” This would require the court to add implied language to the statute that Congress was perfectly capable of making explicit when they wrote it. But Henson argued that had Congress meant to exclude debt buyers from the statutory definition of debt collector, it would have used the word “owing” instead of “owed.” That, Henson said, would have made clear that Congress meant to exclude debt buyers because anyone collecting debt currently owing would fall outside the definition.

But Justice Gorsuch wasn’t biting, citing grammatical authorities for the proposition that past participles are routinely used as adjectives to describe something in its present state, e.g., “burnt toast is inedible, a fallen branch blocks the path, and (equally) a debt owed to a current owner may be collected by him or her.” He further noted that there were multiple places in the FDCPA where construing “owed” to include a current owner was the only interpretation that made sense. Finding no persuasive reason why the word should be interpreted more narrowly — than there would be in other parts of the statute — Justice Gorsuch declined to put words in Congress’s mouth by adopting Henson’s grammar rules. It’s the right result, Mrs. Bailey rolling in her grave notwithstanding.

Henson made some additional textual arguments for the more narrow reading of the definition. However, as those arguments were summarily batted away, policy considerations became the focus of the argument — i.e., debt buying wasn’t prevalent when Congress enacted the statute some 40-plus years ago, but if it had been, Congress certainly would have treated debt buyers as debt collectors subject to the act. But in a unanimous act of judicial restraint Justice Gorsuch (for the Court) declared that the extent of the FDCPA’s reach is a legislative matter, best left to Congress.

While this opinion is about debt buyers, it is important to any creditor that buys a portfolio that includes defaulted debt. As practitioners, we have worried for years that courts would treat purchasers of those accounts as FDCPA debt collectors, and that was probably the case in certain circuits. This case settles that question by holding that if one owns the account, one is by definition not a debt collector subject to that law.

A word of caution, however: The court declined to address two arguments alluded to by the parties that may return a different result in a given circumstance — i.e., the situation where a debt buyer also collects for third parties in addition to itself, and another statutory definition of debt collector that includes “any business the principal purpose of which is the collection of debts.” As it often does, the Court left the door open for future circumstances not present in this case.

Michael Benoit is a partner in the Washington, D.C., office of Hudson Cook LLP. He is a frequent speaker and writer on a variety of consumer credit topics. Michael can be reached at 202-327-9705 or mbenoit@hudco.com. Nothing in this article is legal advice and should not be taken as such. Please address all legal questions to your counsel.

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