Fourth Circuit Holds That Assignee of Defaulted Auto Loans Was Not Debt Collector Under the FDCPA

The United States Court of Appeals for the Fourth Circuit recently held that a company that purchased defaulted automobile loans was not a debt collector under the Fair Debt Collection Practices Act (“FDCPA”).  See Henson v. Santander Consumer USA, Inc., 817 F.3d 131 (4th Cir. 2016).  In the case, the four plaintiffs defaulted on automobile loans which were then sold to the defendant as part of a larger bundle of receivables.  The defendant attempted to collect on the loans, and the plaintiffs filed an action alleging that the defendant had violated the FDCPA.  The defendant filed a motion to dismiss, arguing that it was a creditor, not a debt collector, and was therefore not subject to the FDCPA.  The District Court granted the motion.  On appeal, the plaintiffs argued that because the FDCPA’s definition of a creditor excludes “any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another,” an assignee of a defaulted debt is not a creditor and therefore is subject to the FDCPA.  See 15 USC 1692a(4).  The Fourth Circuit disagreed and affirmed the dismissal, finding that the key distinction between a creditor and a debt collector is “whether a person’s regular collection activity is only for itself (a creditor) or whether it regularly collects for others (a debt collector)—not, as the plaintiffs urge, whether the debt was in default when the person acquired it.”  (emphasis in original).  This holding is contrary to that of other courts, including the Sixth Circuit.  See, e.g., Bridge v. Ocwen Fed. Bank, FSB, 681 F.3d 355, 362 (6th Cir. 2012) (“Therefore, we hold that the definition of debt collector pursuant to § 1692a(6)(F)(iii) includes any non-originating debt holder that either acquired a debt in default or has treated the debt as if it were in default at the time of acquisition”).

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