(Adds background on dispute, paragraphs 3-10)
By Andrew Chung
NEW YORK Jan 13 The U.S. Supreme Court on
Friday agreed to decide whether firms collecting on debt they
bought for pennies on the dollar can be held liable in lawsuits
brought by debtors they targeted under a federal law cracking
down on debt collectors' abusive practices.
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.
Companies that buy delinquent debt from the original lenders
and then go out and collect it from the borrowers are becoming a
fast-growing segment of the multibillion-dollar debt collection
industry. The case taken by the high court could have a major
impact on these debt buyers.
The U.S. Congress enacted the debt collection law in 1977 to
prohibit collectors from using abusive, unfair or deceptive
practices to recoup money.
The current case hinges on the definition of "creditor" and
"debt collector" and whether a company that buys debt should be
treated as a creditor and therefore not subject to the law.
Four Maryland residents who defaulted on car loans filed a
proposed class action lawsuit against Santander in 2012 in
federal court alleging violations of the debt collection law,
such as misrepresenting debt loads and bypassing debtors'
The debts had been sold to Santander, a Dallas-based
vehicle-financing and lending company owned in part by a
subsidiary of Banco Santander, the euro zone's
second-largest bank by market value. 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." They also
noted that appeals courts are divided nationwide on the issue,
with some calling debt buyers creditors and others calling them
Santander told the high court that the 4th Circuit correctly
interpreted the law and that full-service consumer banks are
less likely to commit abuses than debt collection companies
because of their standing in the community.
The appeal to the Supreme Court comes as the U.S. watchdog
for consumer finances, the Consumer Financial Protection Bureau,
is considering proposals to toughen regulation of the industry.
The case is Ricky Henson et al v. Santander Consumer USA,
Inc et al, in the Supreme Court of the United States, No.
(Reporting by Andrew Chung; Editing by Will Dunham)