A Few More Thoughts On Henson v. Santander

by Jeff Sovern

As we reported a couple weeks ago, the Supreme Court ruled in Henson v. Santander that debt buyers are not automatically debt collectors under the Fair Debt Collection Practices Act.   However, debt buyers which have debt collection as the principal purpose of their business should still qualify as debt collectors under the statute (the Court didn't address this point but it is clear from the statute). Henson thus gives debt buyers an incentive to affiliate with larger companies that are not engaged in debt collection so they can argue that collection is not the principal purpose of their business. Economic theory tells us that companies with lower costs and fewer restraints on conduct will win in a competition with companies with higher costs. So it may be that debt buyers that aren’t subject to the FDCPA will eventually drive debt buyers that are out of business. Economic theory does not always produce accurate predictions, but in this case, we have a historical analogy to back it up. Back when Congress first enacted the FDCPA, it didn’t cover lawyers.  Collection lawyers advertised that they could do things non-lawyers couldn’t in debt collection, at least in part because of their immunity from the FDCPA, and so got a lot of business that might otherwise have gone to other collectors.  The same thing may happen with debt buyers not subject to the FDCPA. Conventional debt collectors argued that there were more lawyers advertising their debt collection services than non-lawyers, and eventually, Congress changed the statute to provide that it applied to lawyers. 

Henson might also have an impact on collectors. If debt buyers are able to evade application of the FDCPA, and the FDCPA makes it harder or more expensive to collect debts, creditors might be able to do better by selling their debts rather than hiring collectors to collect them. On the other hand, creditors might prefer to use debt collectors over debt buyers for other reasons, such as the ability to exercise greater control over collectors than debt buyers, so Henson might not be enough to make a difference for collectors. 

This is not to say that debt buyers which are part of a conglomerate can do whatever they want.  While the CFPB won’t be able to apply the FDCPA directly to debt buyers that don’t fit within the FDCPA, the CFPB also has the power to regulate deceptive, unfair, and abusive practices as to entities covered under the Dodd-Frank Act, which includes debt buyers. The Bureau is currently working on debt collection regs as to original creditors, and presumably could extend that to debt buyers too. But in the meantime, CFPB Bulletin 2013-07 took the position that many of the provisions of the FDCPA apply to any covered person. It mentioned, for example, “Falsely representing the character, amount, or legal status of the debt” and “Misrepresenting that a debt collection communication is from an attorney.” But it didn’t say that as to, for example, giving the validation notice required under the FDCPA.

However, that Guidance is vulnerable for several reasons. First, it’s not a reg, and so a new director could revoke it easily. The term of the current director Richard Cordray, expires in July of next year, and it is likely that a Trump-named director would be more friendly to the industry. There have been rumors that Director Cordray will leave even before his term expires (say it ain't so!). Alternatively, if the DC Circuit on en banc review in PHH, upholds the original panel decision, the president could fire the director without cause, and the president is likely to do just that.  In addition, the Financial Choice Act, which the House has passed, would revoke the Bureau’s UDAAP powers, which is how the Bureau has the power to impose the Guidance on original creditors, and by extension, debt buyers.  

That would still leave state law restraints on debt buyers, but state collection laws vary. Consumers can still use common law claims, such as intentional infliction of emotional distress, invasion of privacy, and defamation, but those tend to be useful only in extreme cases. 

All this underlines the need for Congress to overturn Henson, which may eventually happen, but won't in this Congress.

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