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Attn, Bankers: Supreme Court Decision on First Party Collections Affects You!

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Question: 
Did the Supreme Court’s decision in Henson v. Santander Consumer USA, Inc. obviate the necessity for first party creditors to comply with the CFPB’s debt collection rules?
Answer: 

In mid-2017, the United States Supreme Court issued a significant decision in Henson regarding the universe of companies subject to potential liability under the FDCPA. In a unanimous decision authored by Justice Neil Gorsuch, the Supreme Court held that companies that buy defaulted debts are not “debt collectors” under the FDCPA because they are not, by definition, “collect[ing] or attempt[ing] to collect . . . debts owed or due . . . another,” under 15 U.S.C. §1692a(6).

A cursory review of Henson might suggest that first party creditors, even when buying debts in default, are not subject to the FDCPA and therefore would likely not be subject to any rulemaking under the FDCPA.

The Supreme Court in Henson, however, refused to consider the plaintiffs’ arguments that Santander was a debt collector because it allegedly regularly attempts to collect debts and because it is allegedly engaged in a business “the principal purpose of which is the collection of any debts.”

Since the Supreme Court’s decision in Henson in 2017, these two aspects of the definition of debt collector in the FDPCA have become the primary battleground for consumer litigation under the FDCPA. Indeed, a number of courts over the last year have held that first party creditors qualify as debt collectors under the FDCPA’s “principal purpose” prong. See, e.g., Norman v. Allied Interstate, LLC, 310 F. Supp. 3d 509, 514-15 (E.D. Pa. 2018) (“[D]ebt buyers whose principal purpose of business is debt collection . . . are debt collectors under the [FDCPA].”); Tepper v. Amos Financial, LLC, 898 F.3d 364, 370-71 (3rd Cir. 2018); but see Bank of New York Mellon Trust Co. N.A. v. Henderson, 862 F.3d 29 (D.C. Cir. 2017) (holding that Bank of New York, which regularly purchased and collected on defaulted loans, was not a debt collector under the FDCPA because there was no evidence to indicate its principal purpose was debt collection).

Until the Supreme Court weighs in again on the definition of debt collectors under the FDCPA, first party creditors should not simply assume the FDCPA does not apply.

Additionally, it is conceivable that the CFPB’s upcoming debt collection rule could provide a broad interpretation of the “principal purpose” prong that would apply the new rules to first party creditors.

In this webinar, we will review recent debt collection cases and the imminent debt collection rule to ensure your bank is in compliance with the FDCPA.
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Learn more about Carly Souther’s webinar Collecting Past Due Accounts and CFPB Compliance

First published on 10/04/2020

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