The U.S. Supreme Court on Monday declined to expand a federal law targeting alleged harassment and threats in debt-collection tactics, saying oversight of distressed debt buyers that then become collection entities isn’t within the court’s purview.
The court unanimously upheld a lower court’s dismissal of a proposed consumer class-action suit against auto-lender Santander Consumer USA Holdings Inc. SC, +0.61% over allegations it violated the Fair Debt Collection Practices Act.
The case hinged in large part on the definition of “creditor” and “debt collector” and whether a company that buys debt should be treated as a creditor, not subject to the collections law. The law applies only to companies that collect debts on behalf of others—an $11.4 billion industry—and doesn’t apply to businesses like Santander who buy the distressed debt from other companies after it defaults, the Supreme Court ruled.
The plaintiffs argued that unscrupulous debt collectors could evade the law by buying the debt.
The ruling was the first written by the court’s newest justice, Donald Trump-appointee Neil Gorsuch, who said any change to the distinction would require a genesis in congress.
Four Maryland residents who had defaulted on car loans filed a proposed class action in 2012 in federal court, accusing Santander of violations of the debt-collection law including misrepresenting debt loads and bypassing debtors’ lawyers. Their debts had been sold to Santander, which then tried to collect on them. Boston-based Santander Holdings SAN, -0.88% is the majority owner of Dallas-based Santander Consumer USA, which specializes in car loans. Both entities a subsidiary of Spanish lender Banco Santander.
Santander Consumer USA earlier this year agreed to pay $26 million to two states to settle allegations the auto-loan firm violated consumer protection laws.
The pressure on collection may only rise as the health of car loans and the bonds tied to those loan payments have been a widely debated topic in credit markets. That is especially true as the economic expansion stretches into its ninth year and used-auto values soften.
Still, some recent evidence, at least from a credit-ratings firm, shows that riskier car lending has eased.