By the Persisterhood Staff
Two weeks ago, the Supreme Court issued an opinion in Henson v. Santander Consumer USA that at first glance seems uninteresting — it’s about whether debt buyers are subject to the Fair Debt Collection Practices Act — but has important policy consequences. As SCOTUS was quite clear that this is a matter for Congress to address, we thought it couldn’t hurt to send a few letters to our Senators and Representatives expressing our concerns. We encourage our readers to send letters (feel free to use ours) to your own Senators and Representatives. We know Congress has a lot to work on right now (like stopping Trumpcare), but we don’t want this issue to slip through the cracks.
For more background about debt buyers, check out this video by John Oliver.
Dear Senator/Representative _______,
I am writing to express my concerns regarding the policy implications of the Supreme Court’s recent decision in Henson v. Santander Consumer USA. As you may know, the Supreme Court in that case held that debt buyers — entities that purchase defaulted debts originated by others and then collect on those debts — are not subject to the Fair Debt Collection Practices Act (FDCPA). I ask that you support amending the FDCPA to subject debt buyers to the same constraints as independent debt collection agencies.
The Fair Debt Collection Practices Act was enacted in 1977 in response to “the use of abusive, deceptive, and unfair debt collection practices by many debt collectors,” which were contributing to personal bankruptcies, marital instability, job loss, and invasions of individual privacy. 15 U.S.C. § 1692 (a) (2012). Among other things, the act forbids debt collectors from using certain tactics, such as harassment, violence, false representations, or unfair means in connection with the collection of debt.
Although debt collection practices continue to harm consumers, the FDCPA has served to deter at least some unfair and abusive debt collection practices and has resulted in the award of damages to many consumers and agencies who have brought actions against noncompliant collectors. Prior to Henson, the FTC and CFPB understood that debt buyers were subject to the FDCPA and would bring enforcement actions against them for unlawful collection practices. For example, in September 2015, the CFPB settled with the nation’s two largest debt buyers for violating multiple statutes, including the FDCPA, and secured up to $61 million in consumer refunds and an agreement that those entities would stop collecting on over $128 million worth of debts.
On June 12, the Supreme Court held that the term “debt collector” in the FDCPA, which includes anyone who “regularly collects or attempts to collect . . . debts owed or due . . . another,” does not apply to entities that purchase defaulted debt and then collect it. While the Supreme Court did not address the question whether debt buyers could be covered under another statutory definition that includes those engaged in “any business the principal purpose of which is the collection of any debts,” it is not obvious that debt buyers are covered under that definition, either. The fact that debt buyers are likely not subject to the FDCPA’s restrictions could severely harm consumers whose debt is sold off. When the FDCPA was passed in 1977, the debt collection industry was made up almost entirely of third-party debt collectors that earned a percentage of each debt they collected. Today, debt buyers make up a large chunk of the debt collection industry, pulling in a massive $4.4 billion (roughly 32% of industry revenue). As the debt collection industry has grown over the past 40 years — it is now a $13.7 billion dollar industry — the number of cases brought under the Act has increased, more than doubling between 2007 and 2015. In 2015, public actions involving debt collection were able to recover more than $360 million for consumers and $79 million in civil penalties. The FDCPA serves as an important buffer between consumers and companies who might otherwise seek to take advantage of them. If you don’t act to amend the FDCPA to explicitly include debt buyers, consumers will lose these protections.
Allowing debt buyers to duck the FDCPA’s consumer protection provisions poses a number of problems. First, the FDCPA requires debt buyers to adhere to certain procedures that are meant to protect consumers from paying debts that are not actually owed. This is a particular concern for the debt-buying industry. When a debt is sold to a debt buyer, the buyer may acquire portfolios of the debt without purchasing the underlying documentation of the debt. Those portfolios often have inaccurate or missing information, which can lead to debt buyers attempting to collect debts that are not actually owed or have already been paid. Consumers cannot control to whom the debt is sold and are usually unaware that such a transaction has taken place. They may learn of the collection efforts only after they are sued or after a default judgment has been entered against them. Under the FDCPA, third-party debt collectors are required to provide consumers with a written “validation notice” confirming the amount of debt and explaining the consumer’s right to dispute the validity of the debt and require the debt collector to obtain verification of the debt before it may be collected. Debt buyers, on the other hand, are not required to give such notice. It is illogical to have the existence of important consumer protections turn on whether or not their debt is collected by a third-party collector or an entity that has purchased the debt outright. Unless you take action, the application of the FDCPA will turn on this inane distinction.
Second, the ruling in Henson prevents federal agencies like the CFPB from continuing to go after large debt-purchasing entities for violations of the FDCPA. We know that consumers continue to be plagued by unfair collection activities — in 2015 alone, the CFPB received over 85,000 complaints relating to debt collection. Among the concerns consumers reported were attempts to collect a debt that was not owed, high frequency of telephone calls, threats to take an illegal action (such as threats to arrest or jail the debtor), the use of obscene language, and insufficient notice of a right to dispute debts. After Henson, consumers dealing with debt buyers must look to state laws for protection. It is clear from a quick survey of state law that for most consumers, such protection is wildly insufficient. Eight states do not have any comprehensive laws governing debt-collection, and five states require only that debt collectors obtain a license; these thirteen states rely entirely on the FDCPA to protect residents from unfair debt collection practices. Other states that do have debt-collection laws may tie the scope of those laws to the FDCPA or have provisions that are substantively weaker than the FDCPA. For example, just over half of the thirty-seven states that have debt-collection laws provide consumers with a private right of action. Even when a state’s laws reach debt buyers’ collection activities, state Attorneys General may not be able to enforce those laws if they are dealing with out-of-state entities. Stripping federal agencies and consumers of their ability to police debt buyers robs consumers of their primary line of defense, leaving them at the mercy of debt buyers who engage in unfair or abusive collection practices.
Lastly, the Henson holding will likely disproportionately affect low-income and minority communities, military service members, and senior citizens. Studies report that debt-buyer litigation ends in default judgment more frequently when the consumer is from a minority or low- to moderate-income community. This may be because they are unable to afford legal representation. Collection problems can have severe consequences for service members, who may have their security clearances revoked or suffer other professional ramifications if they appear to be not paying off debts as agreed. And studies show that senior citizens are frequent victims of abusive debt-collection practices. The Supreme Court has left our most vulnerable communities at risk, and it is up to you to stand up and fight to protect them.
I urge you to look into this matter and consider supporting an amendment to the Fair Debt Collection Practices Act that would require debt buyers to be subject to the same debt-collection restrictions as third-party debt collectors. The additional protections the FDCPA would provide to consumers would almost certainly outweigh any costs to the industry of having to comply with the statute’s provisions.
Thank you for your time.
*In case you want to tailor the letter to your state, you can modify the language to include the following information (by saying something like “Eight states, including our state of Virginia…”):
- The eight states without comprehensive debt-collection laws: Kansas, Kentucky, Mississippi, Missouri, Montana, Ohio, South Dakota, and Virginia.
- The five states that merely require licensing: Alabama, Delaware, Indiana, New Jersey, and Utah.
- Pennsylvania law only prohibits violations of the FDCPA, so their consumers now have no protection against debt buyers.