Supreme Court: Party That Buys Defaulted Debt Not A “Debt Collector” Under The Fair Debt Collection Practices Act

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Debt collection (pd)In Henson v. Santander Consumer USA Inc., Justice Gorsuch delivered his first opinion for the Supreme Court, and in doing so, provided an interesting opinion on a relatively boring issue, and subconsciously (I assume) invoked the movie Repo Man, a classic (?) mid-1980's movie starring Emilio Estevez and Harry Dean Stanton, which the website,, summarized as follows: "Young punk Otto [Estevez] becomes a repo man after helping to steal a car, and stumbles into a world of wackiness as a result."

Neither the facts nor the law in Henson were wacky. Plaintiffs took out loans from CitiFinancial Auto to buy cars, but later defaulted on those loans. Defendant purchased the defaulted loans and sought to collect the debt from plaintiffs in ways that plaintiffs claimed violated the Fair Debt Collection Practices Act. The Act, which was designed to curtail "[d]isruptive dinnertime calls, downright deceit and more besides" authorizes private lawsuits and "weighty fines" for anyone who engages in "wayward collection practices." But, it only applies to "debt collectors," a term that is defined to include anyone who "regularly collects or attempts to collect . . . debts owed or due . . . another." The question in Henson was whether a party who purchases debts originated by someone else and then seeks to collect those debts for its own account qualifies as a debt collector." Justice Gorsuch framed the issue as follows:

Everyone agrees that the term ["debt collector"] embraces the repo man – someone hired by a creditor to collect an outstanding debt. What if you purchase a debt and then try to collect it for yourself – does that make you a "debt collector" too? That 's the nub of the dispute now before us.  

The district court and the U.S. Court of Appeals for the Fourth Circuit sided with defendant, holding that a party that buys defaulted debt and collects it for its own account is not a "debt collector." In doing so, however, the Fourth Circuit acknowledged that other circuit courts had come to the opposite conclusion. The U.S. Supreme Court took the case to clear up this split. 

Justice Gorsuch began his opinion with a "careful examination of the statutory text." Based on that examination, he found it "hard to disagree with the Fourth Circuit's interpretive handiwork." The Act defines a "debt collector" as one who regularly seeks to collect debts "owed . . . another," which suggests, as Justice Gorsuch put it, "we should [not] care how a debt owner came to be a debt owner . . . [a]ll that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for 'another'." The Act applies to the latter, not the former. Therefore, since defendant collected for its own account, it did not qualify as a "debt collector" under the Act's plain language.

The Supreme Court rejected plaintiffs' somewhat convoluted argument to the contrary. Plaintiffs claimed that the word "owed" as used in the Act was the "past participle of the verb 'to owe'," therefore a "debt collector" is one who regularly seeks to collect debts debts previously "owed . . . another." Based on this premise, Plaintiffs argued, "the statute excludes from its compass loan originators (for they never seek to collect debts previously owed someone else) but embraces many debt purchasers like [defendant] (for in collecting purchased debts they necessarily seek to collect debts previously owed another)." Justice Gorsuch noted, however, that this argument "doesn't follow even as a matter of good grammar, let alone ordinary meaning." As Justice Gorsuch wrote: "Past participles like 'owed' are routinely used as adjectives to describe the present state of a thing – so, for example, 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" (emphasis in original).

Moreover, Justice Gorsuch noted that the very sentence in which "owed" appears — "owed or due . . . another" — underscores the fault in plaintiffs' argument:

[Plaintiffs] acknowledge that the word “due” describes a debt currently due at the time of collection and not a debt that was due only in some previous period.  So to rule for them  we  would  have  to  suppose  Congress  set  two  words cheek by jowl in the same phrase but meant them to speak to  entirely  different  periods  of  time. All  without  leaving any clue.  We would have to read the phrase not as referring  to  “debts  that are owed  or  due  another”  but  as  describing  “debts  that were owed or are due another.” And supposing  such a  surreptitious  subphrasal  shift  in  time seems to us a bit much. Neither are we alone in that assessment, for even petitioners acknowledge that theirs “may not be the most natural interpretation of the phrase standing in isolation.”

(emphasis in original).  (Incidentally, if I had a dollar for every time I used the phrase "surreptitious subphrasal shift in time," I would have about 87 cents.)

Justice Gorsuch also held that plaintiffs' argument was inconsistent with other provisions in the Act, which used the word "owed" to "refer to present (not past) debt relationships." He also noted that when Congress intended to differentiate between "originators and purchasers" of debt, it did so explicitly in the text, not implicitly through the verb tense that it chose. For example, "[i]n the very definitional section where [the Supreme Court found itself] working, Congress expressly differentiated between a person 'who offers' credit (the originator) and a person 'to whom a debt is owed' (the present debt owner.")  Justice Gorsuch found no "similar distinction" in the definition of "debt collector," and "when [the Supreme Court is] engaged in the business of interpreting statutes [it] presumes differences in language like this convey differences in meaning." 

Finally, the Supreme Court addressed plaintiff's policy-based arguments, beginning with another flourish from Justice Gorsuch: "Faced with so many obstacles in the text and structure of the Act, [plaintiffs] ask us to move quickly on to policy. Indeed, from the beginning that is the field on which they seem most eager to pitch battle." Justice Gorsuch ultimately rejected these policy arguments, noting that they required the Supreme Court to speculate about what Congress intended, and that the role of the Supreme Court was not to do so, but instead to "presume more modestly instead that the legislature says what it means and means what it says."

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