Fourth Circuit: Default Status of Debt Is Not Determining Factor of "Debt Collector" Under FDCPA

FDCPA Debt Collection

Recently, the U.S. Court of Appeals for the Fourth Circuit affirmed a district court’s decision that a consumer finance company collecting debts on its own behalf, which it purchased from the original creditor, is still a creditor and is not subject to the FDCPA. Henson v. Santander, No. 15-1187 (4th Cir. Mar. 23, 2016). The plaintiffs in the case each signed a retail installment sales contract with a financial services provider, and when “the plaintiffs were unable to make the payments required by the contracts and thereby defaulted, [the financial services provider] repossessed and sold their vehicles and subsequently informed each plaintiff that he or she owed a deficiency balance.” In 2011, the defendant bought the defaulted loans from the financial services provider and, thereafter, sought to collect on the debts the plaintiffs owed. In their complaint, plaintiffs argued that because the terms “debt collectors” and “creditors” as used in the FDCPA are “mutually exclusive,” any person that “receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another” (which is excluded from the definition of creditor in 15 U.S.C. § 1692a(4)) must be a debt collector. However, the court emphasized that the material distinction between a debt collector and a creditor is “whether a person’s regular collection activity is only for itself (a creditor) or whether it regularly collects for others (a debt collector).” The court opined that the plaintiffs’ argument contained “interpretational and logical flaws,” reasoning that 15 U.S.C. § 1692a(6), which defines “debt collector,” states that to assess whether a person qualifies as a “debt collector,” one must “first determine whether the person satisfies one of the statutory definitions given in the main text of § 1692a(6) before considering whether that person falls into one of the exclusions contained in subsections § 1692a(6)(A)-(F).” The court ruled that the consumer finance company’s actions did not satisfy the first, second, or third definition of “debt collector” in § 1692a(6): “Because the complaint does not satisfy any definition of debt collector, the analysis ends, and the exclusions from the definition of debt collector, on which the plaintiffs rely, have no significance.”

The plaintiffs filed a motion for rehearing en banc on April 6, 2016, which the court denied on April 19.