Supreme Court Sides with Banks in Debt Ser­vic­ing Case

National Mortgage News - - Servicing - By john helt­man

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 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. 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 around San­tander’s debt col­lec­tion prac­tices re­lated to a port­fo­lio of auto loans it pur­chased from Ci­tiFi­nan- cial 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” to ap­ply to a bank col­lect­ing debts on its own ac­count. But jus­tices were sim­i­larly crit­i­cal of the de­fense’s po­si­tion that the 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.

JUS­TICE NEIL GOR­SUCH

U.S. Supreme Court

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