District Court (Pa.) Says Debt Buyers Can Still Be Subject to FDCPA after SCOTUS’ Decision in Henson v. Santander

Until recently, it was settled law in the Third Circuit that debt buyers like LVNV were debt collectors under the Act, because the debts they attempt to collect were in default when they bought them. See Pollice v. Nat’l Tax Funding, L.P., 225 F.3d 379, 404 (3d Cir. 2000) (“[T]here is no question that the ‘principal purpose’ of [defendant’s] business is the ‘collection of any debts,’ namely, defaulted obligations which it purchases ….”); see also F.T.C. v. Check Inv’rs, Inc., 502 F.3d 159, 174 (3d Cir. 2007) (emphasizing that the focus of the debt collector analysis should be whether the debt was in default when it was acquired, joining the Fifth, Sixth, and Seventh Circuits), abrogated in part by Henson v. Santander Consumer USA Inc., ––– U.S. ––––, 137 S.Ct. 1718, 198 L.Ed.2d 177 (2017). But last year, a circuit split spurred the Supreme Court in Henson to review whether entities that regularly purchase debt originated by someone else and then attempt to collect on that debt “for their own account” [hereinafter “debt buyers”] are debt collectors under the Act. 137 S.Ct. at 1721.  Before addressing that question, though, the Henson Court paused to emphasize what it was not deciding. It explicitly declined to address whether those same debt buyers fall within the FDCPA’s first definition of debt collector: “… any business the principal purpose of which is the collection of any debts.” Id. The Court then turned to the “much narrowed question” of whether debt buyers fall within the Act’s “regularly collects … debts owed … another” definition. Focusing on the fact that the “plain language” of the “regularly collects” definition hinges on whether the debt is “owed [to] another,” the Henson Court determined that a debt buyer “may indeed collect debts for its own account without triggering the [‘regularly collects’] statutory definition.” Id. at 1721–22.  Since Henson, decided in June 2017, three district courts in this Circuit have recognized its limited scope, and applied its precepts only to the “regularly collects” definition of a debt collector. See, e.g., Beard v. Ocwen Loan Servicing, LLC, 2018 WL 638455, at *5 (M.D. Pa. 2018). Therefore, if an entity satisfies the “primary purpose” definition of a debt collector, the Henson case does not preclude FDCPA liability, even if the entity is attempting to collect a debt for itself.” Id.; accord Barbato v. Greystone All., LLC, 2017 WL 5496047 (M.D. Pa. Nov. 16, 2017), appeal docketed, No. 18–1042 (3d Cir. Jan. 14, 2018); Schweer v. HOVG, LLC, 2017 WL 2906504 (M.D. Pa. July 7, 2017); Tepper v. Amos Fin., LLC, 2017 WL 3446886 (E.D. Pa. Aug. 11, 2017), appeal docketed, No. 17–2851 (3d Cir. Aug. 25, 2017). In Shweer, the defendant’s “principal purpose of business [was] to buy defaulted debts and thereafter attempt to collect those debts” through a separate collection agency. 2017 WL 2906504, at *1. Accordingly, the court concluded that the defendant fell within “the definition of a debt collector unaddressed by Henson,” and that Henson did not shield the defendant from liability as a debt collector under the FDCPA. Schweer, 2017 WL 2906504, at *5.³ Only one district court in this circuit has reached a contrary result, but that court did not specify which part of the FDCPA definition it relied upon, or even acknowledge that the definition has two parts, with Henson applying only to one. See Chernyakhovskaya v. Resurgent Capital Servs. L.P., 2017 WL 3593115, at *8–9 (D.N.J. Aug. 18, 2017).  Based on the explicit limiting language in Henson, I join the majority of courts within the Third Circuit in holding that Henson applies only to FDCPA claims brought under the “regularly collects” definition of debt collector, and not to claims brought under the “principal purpose” definition. Therefore, debt buyers whose principal purpose of business is debt collection, either directly or through another collector, are debt collectors under the Act. See Beard, 2018 WL 638455, at *5; Schweer, 2017 WL 2906504, at *5 (“[T]he Henson Court also made clear that its holding in that matter was narrow, and did not address the applicability of [the ‘principal purpose’ definition].”); see also Mitchell v. LVNV Funding, LLC, 2017 WL 6406594, at *4 (N.D. Ind. 2017) (“Henson is not applicable to first [“principal purpose”] prong ….”); Guzman v. Mel S. Harris & Assocs., LLC, 2018 WL 1665252, at *4 (S.D.N.Y. 2018) (holding that Henson limited only the “regularly collects” definition and, since the defendant was “in the business of collecting debts,” the court “need not address” the defendant debt buyer’s Henson argument, even though defendant “purchased debts for its own account”).