On April 18, the United States Supreme Court heard long-awaited oral arguments in a case that addresses the fundamental issue of the definition of a “debt collector” under the Fair Debt Collection Practices Act.  The Supreme Court’s decision will resolve an existing Circuit split on whether an entity that purchases defaulted debts and then attempts to collect them for its own account qualifies as a debt collector under the FDCPA.


Here, Plaintiffs sued a vehicle financing and lending company, alleging it violated the FDCPA by misrepresenting the amount of debt owed and its authority to collect such debts.  Plaintiffs argued that, although Defendant admittedly originates loans, it is nonetheless a debt collector because it purchased the debts at issue after they were in default.  The district court disagreed with Plaintiffs, finding that Defendant was a consumer finance company that was collecting debts on its own behalf as a creditor not subject to the FDCPA.  Plaintiffs then appealed the district court decision.  The Fourth Circuit affirmed the dismissal of Plaintiffs’ claims by finding, under the plain language of the statute, that a debt collector must attempt to collect a debt “for another,” not for itself as Defendant did after it purchased the debt at issue.  Plaintiffs appealed to the Supreme Court.  On January 13, 2017, the Supreme Court agreed to hear the case.

The Third, Sixth, and Seventh circuits have adopted the “mutually exclusive” view.  Under this approach, an entity that acquires a debt and subsequently seeks to collect on it must be either a “creditor” or a “debt collector.”  Under the “mutually exclusive” view, an entity is a creditor, not subject to the FDCPA, if (1) it originated the debt, or (2) it purchased the debt before default.  Conversely, the Fourth, Ninth, and Eleventh circuits have found that the terms “creditor” and “debt collector” are not mutually exclusive.  Thus, to be considered a debt collector an entity must meet the “principal purpose,” “regularly collects,” or “false name” test as delineated in the FDCPA.

Oral Arguments Before the Court

Both parties received challenging questions from the bench. 

Plaintiffs’ main argument turned on interpretation of the statutory language “debt owed or due another.”  According to Plaintiffs, Defendant was necessarily a debt collector even if Defendant now owned the debt because, in the past, debt used to be “owed … another,” i.e., the debt originator.  Justice Kagan disagreed, stating, “My problem about this word is I can never get it to mean what you want it to mean no matter how I construct the sentence.”  Similarly, Justice Alito tested Plaintiffs’ argument by noting that such interpretation of the phrase “debt owed … another” is “not the first way you’d read that.  It’s not the fiftieth way you would read it.  It’s just … you’re really going uphill on that.”  In turn, Justice Breyer expressed his concern about exponential broadening of the FDCPA scope that could result if Plaintiffs’ arguments were accepted.

In response to Plaintiffs’ interpretation of the statutory language, Defendant argued that the meaning of the phrase “debt owed or due another” refers to a debt currently owing another (but not yet due) or debts being due.  While not directly disputing Defendant’s statutory interpretation, Justice Kagan immediately challenged Defendant with a broader question: “[I]t doesn’t make much sense, though, does it?  What happened in between the time when your client serviced the debt and the time when your client purchased the debt that in any way changed its relationship with the borrower such that Congress wouldn’t be concerned any longer with its behavior?”  Chief Justice Roberts echoed this concern to which Defendant responded that it had incentives to maintain goodwill with customers and market other financial products to them.  Finally, in addressing Justice Sotomayor’s question regarding the definition of “creditor,” Defendant stated that it “plainly f[e]ll within the definition of creditor because [i]t would be … a person to whom a debt is owed.”

Practical Impact of Supreme Court’s Decision

Due to the existing circuit split, an entity engaging in identical collection practices in two different judicial circuits can face conflicting results. The Supreme Court’s decision will likely resolve this split, promoting continuity among the circuits when categorizing an entity as a debt collector.

The Supreme Court’s decision may result in an expansive reading of the FDCPA.  Alternatively, the Court may clarify that financial services companies that acquire debts in connection with a merger or portfolio sale, but that do not meet the “principal purpose test” under the FDCPA, are not debt collectors subject to FDCPA compliance.  Either way, the Supreme Court’s decision is likely to impact consumer protection litigation in a meaningful way.

We will continue to monitor the case closely.