New CFPB Rule Clarifies When the FDCPA Applies to Debt Buyers

The CFPB has clarified when a debt buyer is considered a "debt collector" and must comply with the Fair Debt Collection Practices Act (FDCPA).

The federal Fair Debt Collection Practices Act (FDCPA) (15 U.S.C. § 1692 and following) places various restrictions on what debt collectors can and can't do when collecting consumer debts. It also provides consumers with certain rights and remedies against those who violate any of its provisions. But the FDCPA usually doesn't apply to your original creditor. And if the party who's calling you to try to collect is a debt buyer, it might—or might not—have to comply with the FDCPA. (A "debt buyer" is a person or business that regularly buys debts from creditors and tries to collect them).

What Is a "Debt Collector" Under the FDCPA?

The FDCPA defines a "debt collector" as:

  • any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or
  • who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. (15 U.S.C. § 1692a(6)).

"Debts Owed or Due...Another" Definition of Debt Collector

Whether a debt buyer falls into the FDCPA's definition of "debt collector" had long been a matter of contention. The U.S. Supreme Court addressed this issue in 2017 in the case of Henson et al. v. Santander Consumer USA Inc., 137 S.Ct. 1718 (2017).

In the Henson case, the Supreme Court applied a straightforward interpretation of the FDCPA and decided that businesses like Santander that buy—and therefore own—the debts they're trying to collect aren't attempting to collect "debts owed or due…another." So, the court decided that companies like Santander that attempt to collect debts owed to themselves aren't debt collectors under the FDCPA.

"Principal Purpose" Definition of Debt Collector

Following the Henson decision, the United States Court of Appeals for the Third Circuit addressed the "principal purpose" definition of a debt collector under the FDCPA. The Third Circuit held in Tepper v. Amos Financial, LLC, 898 F.3d 364 (3d Cir. 2018) that an entity whose principal purpose of business is the collection of any debts is a debt collector for purposes of the FDCPA.

So, this court said that if a business's principal purpose is debt collection, it must comply with the requirements of the FDCPA, even if the entity owns the debts it collects. (In Henson, Santander also convincingly argued its principal purpose was loan origination, which is different from debt buyers that primarily or exclusively buy and collect defaulted debts.)

CFPB Clarifies When a Debt Buyer Is Considered a Debt Collector Under the FDCPA

To address this matter and reinforce the courts' decisions, the Consumer Financial Protection Bureau (CFPB) issued a final rule amending Regulation F (12 C.F.R. § 1006 and following), which implements the FDCPA. As of November 30, 2021, based on the CFPB's rule, the official interpretation to 12 C.F.R. § 1006.2(i) of Regulation F will read:

A person who collects or attempts to collect defaulted debts that the person has purchased, but who does not collect or attempt to collect, directly or indirectly, debts owed or due, or asserted to be owed or due, to another, and who does not have a business the principal purpose of which is the collection of debts, is not a debt collector ….

So, a debt buyer is not considered a "debt collector" for the purposes of the FDCPA if (1) it doesn't collect debts owed or due to another and (2) doesn't have a business with the principal purpose of collecting debts.

Effective date: November 30, 2021