In Henson v. Santander Consumer USA, Inc., 2016 WL 1128419, at *1 (4th Cir. 2016), the Court of Appeals for the 4th Circuit affirmed dismissal of an FDCPA case against Santander Consumer USA, who had purchased CitiFinancial’s defaulted post-repossession debt as part of a bundle of receivables.
When arguing from the definition of creditor, they overlook the fact that the exclusion applies only to a person who receives defaulted debt “solely for the purpose of facilitating collection … for another.” 15 U.S.C. § 1692a(4) (emphasis added). Similarly, in relying on the exclusion in § 1692a(6)(F)(iii), they fail to address whether Santander fits under any definition of “debt collector” before addressing whether the (F)(iii) exclusion applies. We conclude that the default status of a debt has no bearing on whether a person qualifies as a debt collector under the threshold definition set forth in 15 U.S.C. § 1692a(6). That determination is ordinarily based on whether a person collects debt on behalf of others or for its own account, the main exception being when the “principal purpose” of the person’s business is to collect debt. . . . Thus, the overall structure of § 1692a(6) makes clear that when assessing whether a person qualifies as a “debt collector,” we must first determine whether the person satisfies one of the statutory definitions given in the main text of § 1692a(6) before considering whether that person falls into one of the exclusions contained in subsections § 1692a(6)(A)-(F). If a person does not satisfy one of the definitions in the main text, the exclusions in subsections § 1692a(6)(A)-(F) do not come into play. See Davidson v. Capital One Bank (USA), N.A., 797 F.3d 1309, 1314 (11th Cir.2015) (“[W]here a person does not fall within subsection (F) or any one of the six statutory exclusions, he is not deemed a ‘debt collector’ as a matter of course. [Instead], … he must satisfy the Act’s substantive requirements”). The material distinction between a debt collector and a creditor—at least with respect to the second definition of “debt collector” provided by § 1692a(6)—is therefore whether a person’s regular collection activity is only for itself (a creditor) or whether it regularly collects for others (a debt collector)—not, as the plaintiffs urge, whether the debt was in default when the person acquired it. . . .But the very next paragraph of the complaint alleges that on December 1, 2011, CitiFinancial Auto sold the plaintiffs’ loans to Santander. Only thereafter, when Santander began collecting from the plaintiffs on the loans that it had purchased, did Santander engage in the conduct that the plaintiffs allege was in violation of the FDCPA. Specifically, the complaint alleges that after December 1, 2011, Santander improperly contacted the borrowers directly, misrepresented the amounts owed, and misrepresented the fact that Santander was entitled to collect on the loans. Importantly, however, the complaint does not allege that, when Santander engaged in the allegedly illegal collection practices, it was collecting the debts on behalf of CitiFinancial Auto. Rather, it alleges that CitiFinancial Auto had sold the loans to Santander, presumably “for a few cents on the dollar,” thus leaving Santander to collect on the debts for its own account. And this allegation is consistent with public SEC filings, which reveal that Santander purchased $3.55 billion in loan receivables from CitiFinancial Auto on December 1, 2011, following which Santander presumably attempted to obtain a return by collecting more than a few cents on the dollar through its collection efforts. . . Nonetheless, the plaintiffs argue that the default status of a debt is determinative of whether a person who purchased the debt is a debt collector, pointing to exclusion (F)(iii), which excludes from the class of persons defined as a debt collector “any person collecting or attempting to collect any debt owed or due … another to the extent such activity … concerns a debt which was not in default at the time it was obtained by such person.” 15 U.S.C. § 1692a(6)(F)(iii) (emphasis added). They argue that because that provision excludes persons collecting debts not in default, the definition of debt collector must, by a negative pregnant, necessarily include persons collecting defaulted debts that they did not originate. This logic, however, turns the statutory provision upside down, failing to recognize that the FDCPA defines debt collector by reference to those who are included in the various classes and then excludes, among others, the subset of persons who obtain nondefaulted debt to collect on it for others. As noted earlier, this exclusion was included by Congress to protect mortgage service companies and similar loan servicers who acquire debt not in default and service it for a fee. The exclusion thus does not define “debt collector,” but rather identifies a class of persons excluded from the definition of “debt collector.”