Justice Neil Gorsuch’s first Supreme Court opinion won’t earn much notice in his biographies. The unanimous decision reads more like a grammatical lesson, scrutinizing one line of text in a decades-old statute. But if you have ever been harassed in the middle of the night by a debt collector, or been threatened with tax liens or court summonses or even bodily harm, you should understand what Gorsuch and his fellow justices did on Monday: They gave some of the worst bottom-feeders in the economy a free pass to break the law.
The case, Henson v. Santander, looks pretty innocuous at first reading. But the Roberts Court’s deference to big business, and lack of experience about the real-world legislative implications of their legal debating club, turned this decision into a huge win for financial predators. It’s now up to Congress to fix what Gorsuch and friends broke. But with the current group in charge, don’t hold your breath.
Here’s what the case is about. Citi Financial Auto made a series of car loans, and then sold the defaulted debts to the Spanish bank Santander, which subsequently tried to collect. The plaintiffs allege that Santander violated the Fair Debt Collection Practices Act (FDCPA) of 1977 by harassing and intimidating the debtors. The FDCPA protects debtors from such practices, enabling them to file suit against the debt collector, with hefty fines for misconduct.
Santander argued that it bought the debts outright and wasn’t attempting to collect them on someone else’s behalf, as debt collectors regularly do. Therefore, it was exempt from the FDCPA. Two courts agreed with Santander, but the appeal went to the Supreme Court.
At this point we have to perform the drudgery of examining the FDCPA statutory text for how it defines “debt collector.” It’s a fairly targeted definition, with exemptions for government officials, process servers, nonprofit credit counselors, and originators of the debt. A “debt collector,” under the statute, means any business whose principal purpose is collecting debts, or a business that regularly collects “debts owed … another.”
This definition, written in 1977, predates the rise of the debt buyer. Since then, however, debt buying has become a multibillion-dollar industry whose participants purchase defaulted debt for pennies and harangue the debtors for the money.
The question raised by Gorsuch’s opinion is whether a debt buyer should be exempt from the main rule preventing abhorrent misconduct in this industry, just because it bought the debt outright instead of trying to collect as a third party.
According to the Supreme Court, yes. Gorsuch weirdly throws out the first part of the definition—about a business with the principal purpose of collecting debts—writing that “the parties haven’t much litigated that alternative definition” and the Court didn’t agree to address it. So the only dispute here is over the “debts owed … another” clause.
There then follows a long passage about the meaning of those three words—if you are interested in questions of past participles, give it a read—concluding that “a debt purchaser like Santander may indeed collect debts for its own account without triggering the statutory definition in dispute.”
Maybe that’s a reasonable position. But you should understand the consequences. Debt buyers, who to this point had at least some legal exposure to the FDCPA, are now exempt from it, under one definition of “debt collector.” That makes potential litigants reliant on the other definition—a business whose principal purpose is collecting debts. And some experts in this field believe this presents an opportunity for the buyer industry.
“It's almost a road map to me on how you can avoid the FDCPA,” says noted consumer bankruptcy attorney Max Gardner, who runs a boot camp for lawyers fighting predatory lenders. As an international bank, for example, Santander could easily argue that its principal purpose is not debt collection, but originating loans. Other debt buyers could follow the “Santander defense.”
“The biggest debt buyer in the country is called Sherman Acquisitions,” Gardner says. “They own all sorts of subsidiaries. They also own two national banks. You can put two and two together.” Sherman could merely claim that the national banks it owns are the debt collectors, and that’s not their primary purpose. And if the courts agree, the nation’s largest debt buyer would be freed from following the FDCPA, and allowed to call and yell at you at three in the morning.
Sherman could have done that switcheroo before, but they still had to fear running afoul of the “debts owed … another” clause, which other courts had ruled as applicable to debt buyers. With Gorsuch and the Supremes waving that away, debt buyers are free to play all kinds of games to evade regulation. Debt buyers could acquire a community lender and assign it the task of debt collection. Or larger banks could bring a debt buying operation under their roof, as Santander has.
Bankruptcy attorneys seem more exercised by this decision than consumer attorneys, but everyone sees the potential for mischief. “Certain debt buyers by their corporate structure are going to be able to avoid this law,” says April Kuehnhoff, an attorney with the National Consumer Law Center. “Now consumers are not going to know whether this person calling them is covered or isn’t covered [by the act]. I think it raises a lot of difficulty in private enforcement.”
Kuehnhoff adds that Congress needs to get involved right away to fix this newly created hole, rather than wait and see how the industry adapts. Indeed, that was Justice Gorsuch’s conclusion as well, that Congress could merely update the statute by applying it to debt buyers to reflect the changing times. Max Gardner believes that’s a pipe dream with the current Congress. “That’s going to happen as soon as Trump reveals his tax returns,” he says.
Gorsuch’s was the second Supreme Court ruling benefiting debt buyers handed down in the last two weeks. The other, Midland v. Johnson, allows a debt buyer to file a proof of claim in a bankruptcy case beyond the statute of limitations without violating the FDCPA. This creates an incentive for debt buyers to toss expired claims into any bankruptcy case without sanction. “You're buying debt for five (hundredths of one percent), you don't have to hit too many doubles to come up with a pretty good batting average,” says Gardner.
Decisions like those in these two cases happen when you have nine cloistered, Ivy League-educated career jurists on the Court, instead of someone with actual experience in the legislative arena or defending vulnerable people. A 2014 report found that 77 million Americans—more than one in three—have an outstanding debt in collections. Enormous numbers of people are going to have their lives worsened because of this unanimous ruling based on a narrow word construction.
The justices certainly could have clarified the status of debt buyers under the FDCPA using the statute’s entire definition. The Court has no problem expanding rulings when it comes to letting states opt out of expanded Medicaid or enabling unrestricted money in our elections. Only when it comes to people hounded by debts do they adhere so narrowly to the question before them. But businesses almost always get the benefit of the doubt at the Supreme Court in ways that ordinary Americans don’t.
Millions of people will be awakened in the night by an angry telemarketer screaming at them to pay up. I wish the first person to get such a call would be Neil Gorsuch.