Supreme Court sides with banks in debt servicing case

WASHINGTON — Banks and other firms collecting defaulted debt originated by another company are not subject to the kinds of restrictions placed on third-party debt collectors, the Supreme Court ruled Monday in a unanimous decision.

Delivering his first opinion since joining the court in April, Justice Neil Gorsuch said in Henson, et al., v. Santander that the plain language of the Fair Debt Collection Practices Act firmly defines a “debt collector” — to whom the law’s restrictions apply — as one who is seeking to collect “debts owed … another,” as opposed to creditors seeking to collect on their own defaulted debts.

The petitioners in the case invited the court to apply a reading of those words and an interpretation of Congressional intent that is at best awkward, he said.

“To rule for [petitioners] we would have to suppose Congress set two words cheek by jowl in the same phrase but meant them to speak to entirely different periods of time. All without leaving any clue,” Gorsuch wrote.

Andrew Harrer/Bloomberg

Grammatical gymnastics cannot resolve the fact that the law makes a distinction between first-party and third-party debt collectors. Expanding the law’s protections beyond third party debt collectors is a job for Congress, not the courts, Gorsuch said. The fact that new realities have emerged that Congress may not have considered when passing the law in 1978 is not a reason to expand the application of the law, he added.

“While it is of course our job to apply faithfully the law Congress has written, it is never our job to rewrite a constitutionally valid statutory text under the banner of speculation about what Congress might have done had it faced a question that, on everyone’s account, it never faced,” Gorsuch wrote.

The case centers on Santander’s debt collection practices related to a portfolio of auto loans it purchased from CitiFinancial Auto. The plaintiffs argued that Santander’s actions violate the FDCPA because Santander is collecting a debt that it did not originate but rather a defaulted debt that it acquired from the originator, thus making the bank a debt collector under the law.

Justices were highly suspicious of that interpretation when the case came up for oral argument in April, with many of the bench’s liberal justices questioning how they could reasonably understand the “debts owed … another” language to apply to a bank collecting debts on its own account. But justices were similarly critical of the defense’s position that market forces would prevent the purchaser of defaulted debt from resorting to the kinds of techniques that were outlawed in the FDCPA.

Gorsuch said in the opinion those questions remain valid, and Congress may have to redraw the lines in light of the recent expansion of the secondary market for defaulted debt by financial companies. But the court simply is not in a position to do that job on its own, he said.

“We have no difficulty imagining a statute that applies the act’s demands to anyone collecting any debts, anyone collecting debts originated by another, or to some other class of persons still. Neither do we doubt that the evolution of the debt collection business might invite reasonable disagreements on whether Congress should reenter the field and alter the judgments it made in the past,” Gorsuch wrote. “But neither should the proper role of the judiciary in that process—to apply, not amend, the work of the people’s representatives.”