In Santander case, Supreme Court will not expand debt-collection abuse law

Santander’s main business is auto loans, which includes the subprime segment that is currently under close scrutiny

The subprime lending sector is still under close scrutiny, the top court rules in auto lender Santander’s favor.

On Monday, the U.S. Supreme Court did not expand a federal law that targeted alleged harassment and threats with debt-collection practices. The court pointed out that those indebted buyers who eventually fall into debt collection don’t fall within the scope of the court.

A proposed consumer class-action lawsuit against Santander Consumer USA Holdings Inc. (auto-lender) SC, +2.60% was unanimously dismissed by the court after allegations they were in violation of the Fair Debt Collection Practices Act.

A big part of the case focused on the definitions of “creditor” and “debt collector” and if a company which purchases debt should be considered a creditor and not be subjected to collection laws. The law only pertains to other companies that collect debt on another company’s behalf. This industry is now $11.4 billion and businesses like Santander who purchase debt from other businesses once they go into default, don’t fall under this law as ruled by the Supreme Court.

The argument laid out by the plaintiffs was that debt collectors who were unscrupulous could skirt the law by purchasing the debt.

Donald Trump’s new Supreme Court appointee Neil Gorsuch was the writer of the new ruling and he pointed out that any alteration to the distinction will need to have its origin in Congress.

In 2012, four Maryland residents that defaulted on their car loans filed a class action lawsuit in federal court accusing Santander of debt-collection violation of the law which included misrepresenting debt loads and jumping over the lawyers of the debtors. Santander purchased their debt and then tried to collect it. Santander Holdings SAN, -1.17%, a Boston-based company is also the majority owner of the Santander Consumer USA, a Dallas-based company that specializes in car loans. Both companies are a subsidiary of Banco Santander, a Spanish lender.

Earlier this year, Santander Consumer USA agreed to pay $26 million to two states for settlement of allegations that the auto-loan company was in violation of consumer protection laws.

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