SCOTUS case expands protections for debt collectors

The highest court in the country recently ruled on a case questioning the reach of the Fair Debt Collection Practices Act.

Dealing with debt collectors is not pleasant. These businesses make money by getting people to pay off debts. It is not uncommon for debt collectors to misrepresent the amount of debt owed or the possible ramifications for failing to pay the supposed debt in an attempt to bully payment out of consumers. As a result, Congress passed the Fair Debt Collection Practices Act. A law that is designed to help better ensure consumers are protected against unscrupulous debt collectors.

The protections offered by this law were recently put to test in a case heard by the highest court in the country.

What was the case?

The Supreme Court of the United States (SCOTUS) was recently asked to rule on whether or not the Fair Debt Collection Practices Act applies to "debt buyers." Debt buyers are businesses that purchase debt at low rates from the original creditor and then attempt to collect payment themselves from the consumer. This is a business that is growing and has become a fairly profitable emerging industry. However, there are concerns that the practices of debt buyers are in violation of this law.

This case specifically questions whether or not consumers receive protection from these businesses under this law.

What were the allegations?

The plaintiffs contend that the business in question, Santander, repeatedly violated the Fair Debt Collection Practices Act. Two examples provided to support this claim included bypassing the debtor's legal counsel and misrepresenting the amount of debt. The business in question countered that since it purchased the loans it was technically a creditor, not a collector. As a creditor, the law did not apply.

What did the court decide?

Essentially, the justices stated that the law was designed to limit the actions taken by those who collect the debts that are owed to another, not those that are owed directly to the collector. More specifically, the opinion states that the "plain terms [of the law] seems to focus our attention on third party collection agents working for a debt owner - not on a debt owner seeking to collect debts for itself. Neither does this language appear to suggest that we should care how a debt owner came to be a debt owner - whether the owner originated the debt or came by it only through a later purchase."

Ultimately, SCOTUS ruled against the consumer. The holding states that as written, the law does not extend to these types of businesses. Instead, consumers should seek protection by encouraging Congress to change the law.

What does this mean for consumers?

Critics, as noted in a recent publication by Reuters, state that this holding supports big banks. The ruling could also result in attempts from unscrupulous debt collectors to attempt to thwart the laws protecting consumer rights by purchasing debt and presenting themselves as creditors as opposed to collectors. Based on this ruling, the protections provided under the Fair Debt Collection Practices Act would not apply.

This ruling draws attention to the need for legal counsel for any consumer that is attempting to manage debt. An experienced lawyer can review your situation and discuss your legal options.