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Bryan P. Keenan

A Supreme Court ruling distinguishes creditors and collectors

Debt collection is a significant moneymaker. A third of the industry’s $11.4 billion-dollar revenue comes from companies that buy delinquent debt from original lenders and take on the collection duties.

Since the enactment of Fair Debt Collection Practices Act (FDCPA) in 1977, collectors were forbidden to use abusive, unfair or deceptive practices. While the business of collections has evolved, it is also an industry that continues to top complaints to state attorneys generals and the Consumer Financial Protection Bureau.

However, many debtors and their advocates claim that current laws do not go far enough to reign in their illegal activities.

Santander Consumer USA Holdings Inc. faced accusations of violating the FDCPA. In their proposed class action, four Maryland residents who defaulted on car loans claim that the Dallas-based consumer finance company misrepresented debt loads and ignored communications with their legal counsel.

In a unanimous 9-0 decision, the U.S. Supreme Court declined to increase the reach of federal law targeting abusive debt collection tactics. In the ruling, the first written by new justice Neil Gorsuch, regulations that ban acts of harassment and threats do not cover companies that buy debt for collection actions.

The justices’ 9-0 ruling upheld the Richmond, Virginia-based U.S. Circuit Court of Appeals dismissal of a proposed consumer class action lawsuit against Santander. The lower court claimed that the law applied only to debt collectors. When Santander purchased the loan, the company became a creditor not subject to the law.

The high court also wrote that changes to the law should come from the U.S. Congress, not the court.

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