The Supreme Court recently ruled that the Fair Debt Collection Practices Act (FDCPA) prohibits individuals who think that they are experiencing abusive debt collection practices to initiate legal actions against banks have bought defaulted loans from other lenders. The Supreme Court’s rule now states the FDCPA does not apply to a company unless that company is collecting debts. This landmark bankruptcy decision is also unique in that it is the first majority opinion written by recently elected Justice Neil Gorsuch.

The Case at Hand

The case of Henson v. Santander Consumer USA was heard by the Supreme Court concerns a group of debtors who defaulted on their auto loans and tried to initiate a legal action against a group of debtors who defaulted on their auto loans on the basis of predatory collection practices. The Supreme Court, however, found that because Santander owned and serviced the debt, Santander and other similar companies cannot be sued under the FDCPA.

Regulations Under the FDCPA

The FDCPA prohibits collection agencies from using abusive, deceptive, or unfair practices. These are several types of prohibited activities including:

  • Harassing or using oppressive practices against debtors.
  • Threatening that a lawsuit will be filed against a person when this is not possible.
  • Practicing unfair behaviors including forcing individuals to pay more than is owed, depositing post-dated checks prematurely, or any other dishonest business practice.
  • Reporting incorrect credit information including credit bureaus.
  • Seizing or threatening to seize a person’s property to pay off a debt unless authorized to do so by law.
  • Using false or misleading statements so that debtors will make a payment.

The Majority Opinion in the Henson Case

The majority opinion found that the FDCPA does not authorize lawsuits against companies that buy defaulted loans from other lenders effectively blocking the individuals who initiated legal action against Santander. To reach its conclusion, the opinion relies primarily on analyzing parts of speech as well as proper uses of grammar. The majority opinion found that the only fair reading of FDCPA is that Santander did not qualify as a debt collector. A debt collector is defined as an entity that collects debts owed or due to another. The borrowers in this case who were seeking to initiate a class-action case argued that the word “owed” was in the past tense and covered any debt previously owed to another entity and that as a result the debt collection in question was prohibited. As a result of this decision, Santander was able to successfully argue that it was not prohibited from performing its action by the FDCPA because it was now collecting debt for itself and not for another company.

Obtain the Assistance of a Skilled Bankruptcy Attorney

The bankruptcy process has the potential to be very complicated. This recent decision will have the effect that debtors will be prohibited from initiating legal actions against certain third parties who are primarily engaged in debt collection. The decision, however, noted that there is still room for Congress to create rules to better protect borrowers. If you are involved in the bankruptcy process, one of the best steps to proceed forward is to retain the assistance of a skilled bankruptcy attorney like Jim A. Lyon.