How will courts apply a statute to a business that did not exist when the law was written, if the statutory language does not clearly supply the answer one way or the other? The Supreme Court faced that question at oral argument on April 18 in Henson v. Santander Consumer USA Inc., the second case this term involving the federal Fair Debt Collection Practices Act, or FDCPA.
Although predicting the outcome is difficult based on questions from the bench, comments by the justices suggest that consumers may be headed for a second loss of protections from debt collectors in some circumstances. In Midland Funding LLC v. Johnson, argued in January, a majority of justices seemed inclined to find no violation of the FDCPA when a debt collector files a proof of claim in a bankruptcy case based on a debt where collection is barred by the statute of limitations.
In Henson, the case argued on April 18, the Supreme Court will decide whether the FDCPA applies to someone who buys consumer receivables originated by someone else. The Supreme Court granted certiorari to the Fourth Circuit to resolve a split where three circuits, including the Fourth, hold that the FDCPA does not apply when a creditor purchases existing debts. Three other circuits ruled to the contrary.
The justices were unusually quiet during oral argument. They may have been confused or bored by the highly complex question of statutory interpretation, or some of them may have made up their minds already. The case involved a financial institution that purchased an auto lending business belonging to another bank.
The buyer would have qualified as a “debt collector” and would have been subject to the restrictions of the FDCPA before buying the business, because it was then operating as the servicer of the seller’s loan portfolio. Before the purchase, the buyer was covered by the FDCPA because the “principal purpose” of its business concededly entailed collecting defaulted debt owed to someone else.
The plaintiff-consumer argued that the buyer automatically fell within the statute’s complex definitions after the purchase. The plaintiff did not attempt to prove that the buyer operated its business, after the acquisition, within the statutory definition of a “debt collector.”
The Fourth Circuit dismissed the suit, saying the buyer was exempt from the FDCPA after purchasing the business, because it was collecting its own receivables, not those belonging to someone else.
Applying the statute is difficult because the business of buying and selling defaulted debt in the secondary market did not exist when the FDCPA was adopted in 1978. Congress therefore could not have known to create a definition indicating whether or not a debt buyer would be under the FDCPA.
It was not until the last minute in the reply argument that counsel for the consumer contended that debt collectors should not be allowed to evade the FDCPA simply by purporting to purchase consumer receivables, perhaps with an obligation to pay the seller some portion of collections.
Otherwise, oral argument focused on grammar, the tense of verbs, and the difference, if any, between the words “owed” and “due” employed in a pivotal provision in the FDCPA.
Justice Samuel A. Alito Jr. said that the consumer’s lawyer was “really going uphill” in trying to make the statute applicable automatically when consumer receivables are sold. The justices noted that the consumer-plaintiff made no effort in the trial court to prove that the manner in which the buyer conducted its business took it under the FDCPA after the acquisition.
Noting that the bank had been a covered “debt collector” before the purchase and looking to the purpose of the statute, Justice Elena Kagan asked what had changed to take the bank outside of the statute after the purchase. On that issue, Chief Justice John G. Roberts Jr. was skeptical about the notion that the buyer would have had the same incentive to maintain good relations with borrowers as the loan originator had before the sales.
Overall, however, the justices seemed more inclined to rule in favor of the bank when they were focusing only on the statutory language. The opinion, expected before the term ends in late June, will show whether the Supreme Court has flexibility to make a ruling based on what the justices believe Congress would have done had it known about a business that developed years later.
Newly appointed Justice Neil M. Gorsuch asked no questions during argument, although he has a history of being a stickler for statutory interpretation.
To read ABI’s report on the oral argument in Midland Funding, click here.