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Purchaser of Defaulted Loans Qualifies as a “Creditor” under the Fair Debt Collection Practices Act

Ricky Henson, et al. v. Santander Consumer USA, Inc.
No. 15-1187, (U.S. Court of Appeals for the Fourth Circuit, March 23, 2016)

by Caroline E. Willsey, Law Clerk
Semmes, Bowen & Semmes (

Available at:

In Ricky Henson, et al. v. Santander Consumer USA, Inc., No. 15-1187, the U.S. Court of Appeals for the Fourth Circuit considered an action brought by four (4) Maryland consumers against Santander Consumer USA, Inc. (“Santander”) alleging violations of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692–1692p. Four Maryland consumers (collectively, the “Plaintiffs”) each signed a retail installment sales contract with CitiFinancial Auto Credit, Inc. (“CitiFinancial Auto”). When the Plaintiffs defaulted on payments required by the contracts, CitiFinancial Auto repossessed and sold their vehicles and subsequently informed each Plaintiff that he or she owed a deficiency balance.

On December 1, 2011, CitiFinancial Auto sold $3.55 billion in loan receivables, including the Plaintiffs’ defaulted loans to Santander. Thereafter, Santander and its agents began communicating with the Plaintiffs in an attempt to collect on the alleged debts. Plaintiffs alleged that during the course of those communications, Santander and its agents misrepresented the amount of debt and their entitlement to collect it.

The Plaintiffs commenced this action against Santander in November 2012. In their complaint, the Plaintiffs proposed to represent a class of debtors who “were subjected to debt collection efforts by Santander Consumer USA, Inc. on or after December 1, 2011.”

Santander filed a motion to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). The basis of Santander’s motion to dismiss was that the complaint did not sufficiently allege that Santander qualified as a “debt collector” as necessary to trigger liability under the FDCPA. The U.S. District Court for the District of Maryland granted Santander’s motion on May 6, 2014. In its opinion, the district court noted that the FDCPA applies to “debt collectors,” as defined by the FDCPA, but not to “creditors collecting debts in their own names and whose primary business is not debt collection.” In reaching this conclusion, the district court rejected the Plaintiffs’ argument that because their loans were already in default when Santander acquired them, Santander qualified as a debt collector, rather than a creditor, under the FDCPA.

Plaintiffs appealed the district court’s order dismissing their complaint. Plaintiffs argued that the terms “debt collector” and “creditor” under the FDCPA are mutually exclusive. The determining factor as to whether an entity is a “debt collector” or a “creditor” in a given transaction is whether the debt was acquired prior to default or after default. Since Santander acquired the Plaintiffs’ debt after default, the Plaintiffs argued that Santander’s debt collection activities made it a “debt collector.” In support of this argument the Plaintiffs relied on the FDCPA’s definition of “creditor,” which 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. 15 U.S.C. § 1692a(4) (emphasis added). Because Santander falls within this exclusion to the definition of a “creditor,” Plaintiffs argued, it must therefore be a “debt collector.”

The Fourth Circuit rejected Plaintiffs’ reading of the FDCPA, which the Court said stood in tension with the plain language of the FDCPA. The Plaintiffs’ argument overlooked the fact that the FDCPA’s definition of “creditor” excludes only those who are facilitating the collection of defaulted debts “for another.” Therefore, the Court concluded that the default status of a debt has no bearing on whether the entity qualifies as a debt collector under the FDCPA. Rather, the determination is based on whether the entity collects debt “on behalf of others” or “for its own account.” The Court explained that the FDCPA purports only to regulate the conduct of debt collectors, not creditors, “generally distinguishing between the two based on whether the person acts in an agency relationship with the person to whom the borrower is indebted.” A “debt collector” collects debt on behalf of a creditor. A “creditor” is the person or entity to whom the debt is owed.

The Court identified three definitions of “debt collector” within the plaint text of the FDCPA – (1) a person whose principal purpose is to collect debts; (2) a person who regularly collects debts owed to another; or (3) a person who collects its own debts, using a name other than its own as if it were a debt collector. See 15 U.S.C. § 1692a(6). If an entity does not satisfy one (1) of these three (3) definitions, the statutory exclusions to the definition of “debt collector” do not come into play. The Court explained that the exclusion omits a person collecting non-defaulted debts on behalf of others from the definition of “debt collector.” The exclusion, the Court noted, was “intended by Congress to protect those entities that function as loan services for debt not in default.”

With this definition in mind, the Court turned to the allegations against Santander. The Court focused on the allegation that on December 1, 2011, CitiFinancial Auto sold the Plaintiffs’ loans to Santander and only thereafter did Santander begin its collection efforts. At no point did the complaint allege that Santander was engaged in illegal collection practices on behalf of CitiFinancial Auto. Rather, by the time Santander became involved in the debt collection it was already the owner of the defaulted loans, leaving Santander to collect on the debts for its own account.

Applying the allegations against Santander to the definition of “debt collector,” the Court held that it was apparent that Santander was not a “debt collector” under the FDCPA. The complaint did not allege (1) that Santander’s principal business was to collect debt, (2) that Santander was collecting debts owed to another, or (3) that Santander was using a name other than its own to collect debts. Because the complaint did not satisfy any definition of “debt collector,” the Court determined that the analysis was over and the exclusions from the definition of “debt collector,” on which Plaintiffs relied, had no significance.

The Court also rejected the Plaintiffs’ allegations that Santander fell within an exclusion to the definition of “creditor,” thus making it a “debt collector” under a theory that the two terms were mutually exclusive. The term creditor is defined by the FDCPA as “any person who offers or extends credit creating a debt or to whom a debt is owed.” 15 U.S.C. § 1692a(4). The definition excludes “any person to the extent that he receives an assignment or transfer of debt in default solely for the purpose of facilitating collection of such debt for another.” The Court noted that “debt collector” is defined separately under the FDCPA. That definition, rather than an implied definition based on an exclusion to the definition of “creditor” is determinative. Moreover, even if falling within the “creditor” exclusion did make an entity a “debt collector,” the Plaintiffs failed to allege facts to establish that Santander fell within the exclusion. The Court reiterated that the complaint did not allege that Santander was facilitating the collection of debt on anyone else’s behalf. In fact, the complaint explicitly alleged that Santander was attempting to collect debt that it had purchased, making any collection efforts on its own behalf.

Because the complaint failed to allege facts demonstrating that Santander was acting as a “debt collector” as explicitly defined under 15 U.S.C. § 1692a(6), when it was collecting on debts owed by the Plaintiffs, the Fourth Circuit affirmed the judgment of the district court, dismissing the Plaintiffs’ complaint.