In some respects, debt collection remains a bit of gray area, in terms of who owes what, when it can be collected and how firms that collect debt can behave in some interactions with borrowers.
And The New York Times reported that an argument laid before the Supreme Court earlier this week “explored a gap” in a law governing federal debt collection. The loophole, said some opponents, allows for abusive tactics as debt collectors try to glean money from borrowers. Yet, said the Times, the justices seemed disinclined to address that alleged gap.
As the publication noted, the Fair Debt Collection Practices Act traces its genesis back 40 years and sought to govern and still governs the way companies can collect on third-party debt. But, said the Times, the act did not define and lay out the ways that credit card companies or banks and other firms could collect on their own debts. And questions remain as companies increasingly buy distressed debt and seek to collect on it.
The case before the Court, known as Henson v. Santander Consumer USA, centers on CitiFinancial’s issuance of some card loans. Those loans had been serviced by Santander, which had been collecting on the loans and working with borrowers behind on payments.
But the same firm bought defaulted loans from CitiFinancial and, upon owning the loans, began its own collection efforts. In the wake of that activity, several borrowers sued, alleging that Santander had violated debt collection laws with false statements and but communicating directly with consumers who had hired attorneys (such direct contact is prohibited). Santander’s counterargument was that, as the Times described, “the law did not apply to it,” an assertion rooted in the phrase that a debt collected is one who regularly collected on monies “owed or due another.”
An attorney for Santander, Kannon K. Shanmugam, told the court that a firm that purchases debt and then collects for its own account is not in fact a debt collector. One distinguishing factor here, the attorney told the court, lies with the fact that Santander would have “different interests” in place from those of debt collectors, among them the desire to want to maintain good rapport with clients and cross-sell them other products. Conversely, Kevin K. Russell, serving as a lawyer for the borrowers, said that should a decision be handed down against his clients, then debt collectors could be exempt from regulation under federal law.
“All they have to do,” he said, as the Times quoted, “is change their contract with their customer to arrange for a purchasing of the debt that they’ve been hired to collect and arrange to give back 60 percent of what they collect by virtue of that assignment, and they would evade regulation as well.”