Posted On Jul 06, 2017
A June 12, 2017, U.S. Supreme Court ruling means businesses have less to worry about from regulations designed to protect consumers from abusive and deceptive practices when attempting to collect their own debts.
The Fair Debt Collection Practices Act (FDCPA) authorizes private lawsuits and weighty fines to deter the wayward practices of debt collectors. In the high court’s view, “debt collector” refers to a third-party servicer collecting debts on behalf of a creditor. A bank or other provider that originates a loan and tries to collect the debt itself is not a debt collector and therefore is not bound by the FDCPA.
In Henson v. Santander Consumer USA Inc., CitiFinancial Auto loaned money to car buyers and Santander then purchased the defaulted loans from CitiFinancial. Santander sought to collect those debts in ways that the borrowers believe violated the FDCPA. Santander claimed it was not acting as a servicer of CitiFinancial; it instead was the new owner of that debt.
The district court and Fourth Circuit held that Santander didn’t qualify as a debt collector because it did not regularly seek to collect debts on behalf of others. Rather, it sought only to collect debts it owned outright after purchasing from a third party. The Supreme Court affirmed the lower court’s ruling.
This is important for South Carolina businesses seeking to collect money owed because the FDCPA lays out prohibited and required conduct for debt collectors.
When a business tries to collect a debt on behalf of another party, it must first begin a debt validation process within five days of contacting the borrower to confirm who owes the debt, the name of the creditor and the amount of the debt. The borrower has 30 days to dispute the debt or it is assumed to be valid. If the debtor notifies the debt collector within 30 days to dispute the debt or a portion of it, then the collector must send the borrower verification of the debt.
Also, when a debt collector communicates with a borrower, each document must say that the servicer has been retained to collect a debt and that any information obtained can be used for that purpose. If this disclosure is omitted, it could trigger a $1,000 violation for the debt collector.
The FDCPA has strict protocols for how a debt can be collected, but after the recent Supreme Court ruling, businesses collecting on defaulted debt that they own do not have to be as concerned about running afoul of those restrictions. Consult your lawyer if you have questions about how to approach collection of a debt.