The U.S. Supreme Court will decide whether firms collecting on a debt they bought for pennies on the dollar can be held liable in lawsuits brought by consumers. The justices agreed to review a lower court’s decision to dismiss a consumer class action lawsuit against Santander Consumer USA Holdings Inc. over allegations it violated the Fair Debt Collection Practices Act– a debt collection law enacted in 1977 that prohibits collectors from using abusive, unfair or deceptive practices to collect a debt.
The current case hinges on the definition of “creditor” and “debt collector” and whether a company that purchases debt should be treated as a creditor and therefore not subject to the law.
The case (Ricky Henson et al v. Santander Consumer USA, Inc et al, in the Supreme Court of the United States, No. 16-349) involves four Maryland residents who defaulted on their auto loans, and filed a proposed class action lawsuit against Santander in 2012 in federal court alleging violations of the Fair Debt Collection Practices Act, such as misrepresenting the debt amount and bypassing debtors’ attorneys.
The debts had been sold to Santander, a Dallas-based vehicle-financing and lending company owned in part by a subsidiary of Banco Santander. Santander then tried to collect on the loans.
The 4th U.S. Circuit Court of Appeals in Richmond, Virginia threw out the lawsuit last March, saying the law applied only to debt collectors, and Santander became a creditor when it purchased the loans.
The Maryland residents told the Supreme Court the 4th Circuit’s reasoning would “hamper both government and private efforts to combat abusive debt-collection practices.” The appeal to the Supreme Court comes as the Consumer Financial Protection Bureau is considering proposals to toughen regulation of the industry.
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