In a June 12, 2017 decision, the U.S. Supreme Court unanimously held that certain consumer finance companies that purchase and collect defaulted debts originated by other lenders are exempt from the strictures of the Fair Debt Collection Practices Act of 1977 (the FDCPA or the Act). Henson v. Santander Consumer USA, 137 S. Ct. 1718 (2017). The case, which turns on who qualifies as a “debt collector” under the FDCPA, has significant implications for the distressed debt industry and will likely lead to industry-wide changes as companies restructure so as to benefit from the guidance contained in this ruling.

Background

Henson arose from an appeal of a Fourth Circuit decision affirming the U.S. District Court for the District of Maryland’s dismissal of claims against Santander Consumer USA. The underlying complaint involved allegations that Santander, a bank that purchased defaulted automobile loans from their originator, was a “debt collector” under the FDCPA and that it violated the FDCPA by making certain misrepresentations in the process of collecting on those purchased, defaulted loans. The district court found that the plaintiffs failed to allege sufficient facts to demonstrate that Santander was a “debt collector” under the FDCPA and dismissed the case against Santander pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim for which relief can be granted. Henson v. Santander Consumer USA, No. Case No. RDB-12-3519, 2014 WL 1806915, at *3 (D. Md. May 6, 2014); Henson v. Santander Consumer USA, 817 F.3d 131, 133 (4th Cir. 2016), cert. granted, 137 S. Ct. 810, 196 L. Ed. 2d 595 (2017), and aff’d, 137 S. Ct. 1718, 198 L. Ed. 2d 177 (2017).