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Today the Supreme Court reversed a long-standing interpretation of the Fair Debt Collection Practices Act. As of now, the FDCPA cannot be applied to a party that purchases debts - even if they do so solely to collect on debts in that are in default.

As long as the buyer does not collect debts as it's primary business... In this ruling, SCOTUS is attempting to carve out an exclusion for banks. Of course a bank's primary business is the collection of debts - usually ones it originated.

However, the original creditor was already excluded under the FDCPA. In the case before the Supreme Court Santander Consumer USA Inc purchased loans in default from CitiFinancial Auto and attempted to collect on them.

With that said, the High Court did suggest that their ruling was very narrow in this case:

First, petitioners suggest that Santander can qualify as a
debt collector not only because it regularly seeks to collect
for its own account debts that it has purchased, but also
because it regularly acts as a third party collection agent
for debts owed to others. Petitioners did not, however,
raise the latter theory in their petition for certiorari and
neither did we agree to review it. Second, the parties
briefly allude to another statutory definition of the term
“debt collector”—one that encompasses those engaged “in
any business the principal purpose of which is the collection
of any debts.” §1692a(6). But the parties haven’t
much litigated that alternative definition and in granting
certiorari we didn’t agree to address it either

It appears that had the Petitioners made one or more of these alternate arguments they might have prevailed. They did not. Since they did not, it's likely debt purchasers will be encouraged by this ruling to ignore the FDCPA when it is convenient for them to do so.

My problem with this ruling is that by throwing out the FDCPA for debt purchasers, it eliminates the requirement that the buyer provide evidence of the obligation as well as the chain of custody. A buyer could legitimately be purchasing a loan and if they refuse to respond to the request, you just won't be able to tell how it came to be in their hands or if perhaps it really didn't and you still owe the original creditor. Subsequent creditors should be forced to comply with such a request.

In fact I would argue that ANY creditor should be required to present evidence of a debt on demand. (With an exclusion for nuisance requests of course.) The reason for such a provision is obvious: in the case of fraud, you may be the first party to a loan you weren't even aware of. A creditor should be required to present evidence of a binding contract without requiring you to sue them to obtain it.

With that said, the CFPB announced last Thursday that they are reviewing possible changes the FCPA to require an increase in creditor transparency. Of course this is principally targeted at banks. Given that Santander is a bank, perhaps they will re-examine these rules in light of this SCOTUS ruling. Of course the FCPA is legislation so the CFPB cannot directly circumvent it, but it is also a bank regulator so at least it can have an impact there.

- Joel
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