FDCPA Update: Henson V. Santander Consumer USA

FDCPA Update: Henson V. Santander Consumer USA

The FDCPA case in question: Henson v. Santander Consumer USA

It's 6:29am on a Thursday morning and I'm finally getting around to doing a proper treatment of this case. The facts are pretty straightforward, but it's the holding (which irritatingly makes sense) that is the real kick in the marbles for consumer rights lawyers and advocates. So here we go.

The facts recount a tale as old as time in the debt industry. Henson purchased a vehicle using money loaned by CitiFinancial Auto. Times apparently became tough and Henson defaulted on the loan. CitiFinancial sold that defaulted loan debt to Santander Consumer USA. Santander began attempting to collect on that debt.

So our players are:

  • Henson — Broke debtor
  • Santander Consumer USA — Slimy debt buyer
  • CitiFinancial Auto — Lazy original creditor

So here's what happened in the courts:

  1. Henson filed a consumer rights case under the Fair Debt Collection Practices Act against Santander. The facts of that case are ultimately unimportant to the outcome.
  2. The District Court (trial level court in the federal system) held that the FDCPA did not apply to Santander because Santander was not a "debt collector" under the statute.
  3. Henson appealed.
  4. The Fourth Circuit (appellate federal court for Maryland, Virginia, South Carolina, North Carolina, and West Virginia) heard the case an affirmed the lower court's decision.
  5. Henson petitioned the Supreme Court to hear the case, and the Supreme Court took the case up on appeal.
  6. The Supreme Court heard oral arguments and ultimately held that Santander was not liable under the FDCPA as a "debt collector".

Now you may be asking yourself why you should care about this decision. It's pretty simple really, but not well known. The debt buying industry is HUGE. I mean, it's enormously gigantically big. And for a long time, "debt buyers" were considered "debt collectors" by most courts, and the FDCPA applied. This was largely because the FDCPA specifically exempted original creditors, but said very little about debt owners that did not do the original lending.

But now, the Supreme Court has weighed in. Debt buyers are not covered by the FDCPA. Which means that there is no reason for the industry to ever use debt collectors at all when they can shift entirely to a debt buying model.

So how is this going to harm the average consumer? Simple. The FDCPA has been neutered, so those rules that prevent debt collectors from being jackasses apply to significantly fewer of those calls you receive at dinner time.

But there is hope. The Supreme Court did not rule on whether a company like Santander that is both a debt buyer and a debt collector (i.e. it collects debts on behalf of others) can be successfully sued on FDCPA grounds while collecting debt it has bought.

So we will see what happens.