In a unanimous Supreme Court ruling Monday, debt buyers can collect accounts they own without obeying the federal law that reins in professional debt collectors
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The U.S. Fair Debt Collection Practices Act forbids debt collectors from using deceit or harassment, or revealing a borrower’s debts to others. The 1977 law makes creditors exempt, aiming instead at hired debt collectors. But it was written before the in-between category of debt buyers became a factor in the industry.
Setting the boundaries “are matters for Congress, not this Court, to resolve,” said a summary of the decision released by the court.
The ruling in the Henson v. Santander case is bad news for debtors who face harsh collection tactics from debt buyers. Twenty-eight states and the District of Columbia filed a brief supporting Henson’s case, saying hardball debt collection harms households and communities – and shouldn’t get a pass just because the collector owns the debt it is collecting.
Large debt buyers such as Midland Capital, Encore Capital Group and PRA Group, parent of Portfolio Recovery Associates, together own tens of billions of dollars in consumer debts, industry analysts estimate. Debt buyers have been the target of lawsuits or regulatory crackdowns involving their collection tactics.
Will tactics get tougher?
Being exempt from the collection law means, for example, that debt buyers could call you at 11 p.m. or 3a.m., without regard to the time reserved for collection calls. That time frame is a more reasonable 8 a.m. to 9 p.m. under the FDCPA, unless your state sets tighter standards.
However, the loophole is not wide-open, said April Kuehnhoff, staff attorney at the National Consumer Law Center. While the court’s decision looked at the definitions of creditors and debt collectors, the law also contains a standard requiring companies whose “principal purpose” is collecting debts to abide by the rules.
“This is a narrow decision from the Supreme Court,” Kuehnhoff said. It remains to be seen whether debt buyers will test the ruling by pushing more aggressive tactics, or restructure to avoid having a “principal purpose” of collecting debts.
Santander bought Henson’s unpaid debt as part of a large portfolio of “performing” loans, meaning they weren’t in default. Other debt buyers that focus on collecting defaulted debt shouldn’t expect to squeeze through the exemption in the court’s decision, she said.
1977 law seen as out of date
The ruling suggests that the law could be updated to reflect how the industry has changed, an idea that both consumer advocates and some debt collectors support.
“[T]he evolution of the debt collection business might invite reasonable disagreements on whether Congress should re-enter the field and alter the judgments it made in the past,” Justice Neil Gorsuch wrote in his first opinion for the court.
The U.S. Consumer Financial Protection Bureau is working on regulations implementing the FDCPA that could help bring it up to date.
Written in 1977, “this area of the law has become outmoded over the past 40 years,” CFPB director Richard Cordray said in remarks June 8 to the bureau’s Consumer Advisory Board. “The courts have been forced to try to make sense of statutory provisions and apply them to a very different world.”
Case began over auto loan
After Ricky Henson of Maryland failed to repay an auto loan to Citibank, the lender sold the loan as part of a larger portfolio to Santander Consumer USA. Henson and others sued Santander in 2012 under the FDCPA for trying to collect more than they thought was owed on their loans. A Richmond, Virginia, federal appeals court ruled against Henson, saying Santander is exempt from the debt collection law because it owned Henson’s debt, making it a creditor.
Debt buyers own estimated tens of billions of dollars in defaulted consumer debts, including credit card balances, auto loans, medical bills and others.
In addition to the federal law, several states restrict debt collectors, and some of their laws are tighter than the federal law, Kuehnhoff said. State- and municipal-level agencies that handle consumer complaints about collectors are listed by the North American Collection Agency Regulatory Association.
At the time of publication Santander USA hadn’t replied to a request for comment.