Henson, et al. v. Santander Consumer USA, Inc.

LII note: The U.S. Supreme Court has now decided Henson, et al. v. Santander Consumer USA, Inc. .


Is an entity that purchases debt from another entity and then attempts to collect that debt for its own benefit, including debts that are in default, considered a “debt collector” under the Fair Debt Collection Practice Act (FDCPA) and thus subject to the FDCPA’s restrictions?

Oral argument: 
April 18, 2017

In this case, the Supreme Court will decide whether an entity that attempts to collect from defaulted loans is a “debt collector” as defined in 15 U.S.C. § 1692a(6). This definition includes two prongs, and Petitioners Henson, et al. argue that in the second prong, “owed or due another” should be read as debts owed to the originator but due to the debt purchaser. . Since the debt that Respondent Santander tried to collect was due to Santander, who is the purchaser of the debt, Petitioners argue that Santander was a debt collector under 15 U.S.C. § 1692a(6) and can therefore be held liable under the Fair Debt Collection Practice Act (FDCPA). . Moreover, they maintain that the Fourth Circuit’s contrary interpretation may encourage the debt industry to engage in practices like loan diversification to avoid regulation and liability under the FDCPA. . On the other hand, Santander contends that a number of textual cues in the statute, such as the grammar and repeated use of present tense, demonstrate that “owed or due another” regards the time of collection, which releases Santander of liability because during the period of collection Santander was not collecting on behalf of another entity. . Moreover, Santander argues that most of the abusive practices that could be exempted from the FDCPA may be regulated by another statute. . At stake are the extent of legal accountability for debt purchasers and the incentives for purchasing debt.;

Questions as Framed for the Court by the Parties 

Is a company that regularly attempts to collect debts it purchased after the debts had fallen into default a “debt collector” subject to the Fair Debt Collection Practices Act?


Petitioners Ricky Henson, Ian Glover, Karen Pacouloute, and Paulette House (“Henson et al.”) received a loan from CitiFinancial Auto Credit, Inc., CitiFinancial Auto Corp., or CitiFinancial Auto, LTD (collectively, “CitiFinancial Auto”) to finance the purchase of an automobile After Henson et al. defaulted on their loans, CitiFinancial Auto repossessed their vehicles and sent them notifications that their collateral was insufficient. On December 1, 2011, CitiFinancial Auto sold a bundle of loan receivables, which including Henson et al.’s loans, to a consumer finance company called Santander Consumer USA, Inc. (“Santander”) for $3.55 billion. In an effort to turn a profit from the purchased loans receivable, Santander and its agents began attempting to collect debts from Henson et al. During these attempts, Santander allegedly misrepresented the amount of the debt owed and the amount it was entitled to receive.

In November 2012, Henson et al. commenced a lawsuit in district court against Santander and its agents, alleging that Santander violated the FDCPA in pursuing the debts and in the way it pursued them. They proposed to represent the class of debtors subjected to Santander’s debt collection efforts on or after the date of the $3.55 billion transaction between CitiFinancial Auto and Santander. Santander filed a motion to dismiss the complaint under Federal Rules of Civil Procedure 12(b)(6) on the grounds that the complaint did not demonstrate Santander was a “debt collector” as defined in the FDCPA and therefore could not be held liable under that Act. On May 6, 2014, the district court agreed with Santander and granted the motion, drawing a distinction between debt collectors as defined in the Act and creditors collecting debts for proprietary purposes and not doing business primarily in debt collection. The court rejected Henson et al.’s argument that Santander’s attempt to collect on the defaulted loans made it a debt collector.

Henson et al. filed an appeal to the United States Court of Appeals for the Fourth Circuit on a single issue: whether Santander was a debt collector as defined in 15 U.S.C. § 1692a(6) when Santander engaged in collection activity on or after December 1, 2011. In their brief, they argued that the primary distinction between a creditor and a debt collector for purposes of FDCPA liability is whether the debt was acquired prior to or after default, relying on their interpretations of the definitions of those terms in 15 U.S.C. § 1692a(4) and § 1692a(6). They argued that the FDCPA regulates debt collectors but not creditors, and that the two terms within the Act are mutually exclusive; since § 1692a(4) excluded as creditors people who received a debt in default, such people must categorically be a debt collector. In addition, they argued that § 1692a(6) excluded people who received a debt not in default from the definition of a debt collector. However, the court concluded that the default status of a debt was not a factor in determining whether a person qualified as a debt collector under § 1692a(6) because the plain language and legislative intent of the statute evidences the determination to be based on whether the debt was collected on behalf of others or for its own proprietary purposes. Thus, the Fourth Circuit determined that since Santander bought debt from CitiFinancial Auto and did not collect the debts on behalf of CitiFinancial Auto, Santander was collecting debt for its own account and therefore was not a debt collector under § 1692a(6). The Fourth Circuit affirmed the judgment below and Henson et al. appealed to the United States Supreme Court.


The FDCPA defines “debt collector” as any person who “regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” Henson et al. assert that the mere fact that another entity purchased the debt in question does not free that party from the constraints of the FDCPA, singling out language indicating that those debts are still “owed” to the originator of the debt regardless, thus rendering the third party a debt collector. Santander contests Henson’s interpretation of the statute, believing that it departs from the text’s plain meaning in which a purchaser of debt that clearly intends to collect the debt for its own benefit is not doing so for debts “owed or due another” so is not a debt collector.


While acknowledging that its interpretation is not the most “natural” reading of the statute, Henson et al. contend that treating purchased debt as “owed” the originator but “due” to the purchaser is consistent with the rest of the language of the statute. They analogize buying debt to assigning debt, a situation in which one could infer that the debt is presently owned by the originator but due to the assignee. They contend that the FDCPA definitions of debt collector make similar analogies to assignment, so the statute contemplates the distinction between the originator of the debt and the assignee. They further argue that a debt purchaser, who in effect becomes a “creditor,” can still be considered a debt collector under the FDCPA because there is no general exception for creditors. And even if there were an exception, the exceptions granted by the FDCPA would be illogical without a distinction between being “owed” and “due” the debt with respect to an originator and assignee or purchaser.

Santander dismisses that reading as completely at odds with the statute’s plain meaning, asserting that the statute does not make any distinction between the originator of the debt and the entity to whom it is presently due. Santander disagrees with the analogy of assignment with the purchase of debt, as the former does not convey full title, while the latter does; unlike assignment, purchasing debt extinguishes any rights of the originator and thus renders the “owed” and “due” distinction moot. At a more basic level, Santander states that the fundamental grammatical structure of the statute establishes the relevant point of time at which “owed” and “due” become relevant: at the time of collection, which does not account for the time of origination. Indeed, Santander notes that Congress did not explicitly indicate in the statutory definition that debt collectors “referred to debts that were originated by another,” so the plain-meaning of the text as written should control. Santander cites several cases in which the Court looked to the plain meaning of the relevant statute to establish the time-frame under which the wording of the statute would be interpreted. Santander claims that the only remaining issue is whether the entity that has purchased the debt is collecting for its own benefit and not for the sake of another, and maintains that debt purchasers are collecting for their own benefit because a debtor has an obligation to pay the purchaser, not the originator.


Regardless of the meaning of the terms “due” and “owed,” Henson et al. assert that it should prevail because the scope of the debt collector definition in the FDCPA applies to entities that service any amount of debt on the behalf of third parties, so long as that debt is collected “regularly.” Even if such services only account for a small part of that entity’s overall activity, Henson et al. claim that the FDCPA’s restrictions would apply, as that entity would not distinguish between the debts it purchases and those it services with respect to the collection practices the FDCPA is intended to oversee. As such, they contend that even if the “owed” and “due” distinction is rendered moot in the event of a purchase, the FDCPA restrictions apply even in situations in which the relevant entity is not servicing debt on the behalf of third parties.

Santander maintains that argument is outside of the scope of the writ of certiorari granted in this case and, even if considered on its face, is without merit. Moreover, Santander argues that the collection of debts for third parties must be a “substantial part” of the relevant entity’s business for FDCPA restrictions to apply, rendering the claim here irrelevant for the purposes of this case should it be considered.



Jerome N. Frank Legal Services Organization at the Yale Law School (“LSO”) contends that the Fourth Circuit’s determination of what person qualifies as a debt collector for FDCPA liability purposes could be used as a means of avoiding liability under the Act through creative purchasing arrangements and company diversification of services offered . Moreover, LSO argues that if savvy firms are able to escape FDCPA liability, these firms will be able to take advantage of the most vulnerable consumers, undermining the purpose of the FDCPA. Further, the National Consumer Law Center’s argues that the approximately one-hundred-billion-dollar consumer debt industry will continue to grow if the Fourth Circuit’s determination stands. . In additionthe State of Oregon et al. maintains that because state enforcement of debt collection is difficult and many debt collectors are national, a reversal of the Fourth Circuit would facilitate state and federal enforcement of the law against firms that engage in abusive debt-collection practices. .

On the other hand, ACA International, in support of Santander, maintains that if the Fourth Circuit determination is reversed, entities within the consumer-credit/debt-collection markets that are not like Santander would be swept under the Act, including those who became successor creditors not through the sale of debt. . Regarding the consumer-credit market, the Chamber of Commerce (“CoC”) argues that diversified financial institutions could fall under petitioner’s interpretation of the FDCPA, notwithstanding the fact that these institutions buy and sell loans for many different reasons. . According to the CoC, under Henson et al.’s interpretation, financial institutions would have incentive to settle despite having a potentially meritorious defense, given the context of the recent rise in attorney-driven litigation under the FDCPA, the risk of large damage rewards, and the complexity of the FDCPA. . Thus, the CoC argues that financial institutions that create new loans through funds received from selling debt in the secondary markets and reduce credit costs via selling debt, as opposed to raising equity, may be deterred from conducting these activities. The CoC then argues that the resulting increased cost of credit would hurt high-risk borrowers, who are generally low-income individuals. . Moreover, ACA International argues that Henson et al.’s interpretation could undermine the national credit economy because the efficiency of credit-related activity is dependent upon secondary markets for hard-to-collect debt. If the Fourth Circuit’s decision is reversed and liability under the FDCPA is broadened, ACA International contends that debt will become less attractive to debt buyers, which would depress the hard-to-collect debt market. This, in turn, ACA International argues, would undermine the mitigating force that helps keep interest rates down, thus, decreasing the efficiency of the general credit economy.

Edited by 


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