(Adds comment from Santander, plaintiffs' lawyer, civil rights group, paragraphs 5, 13-14)
By Andrew Chung
WASHINGTON, June 12 (Reuters) - The U.S. Supreme Court on Monday declined to widen the reach of a federal law targeting abusive debt-collection tactics such as harassment and threats, ruling it does not cover companies that buy debt, sometimes for pennies on the dollar, and then collect it.
The justices, in a 9-0 ruling, upheld a lower court's dismissal of a proposed consumer class action lawsuit against Santander Consumer USA Holdings Inc over allegations it violated a law called the Fair Debt Collection Practices Act.
The ruling was the first authored by the court's newest justice, President Donald Trump's appointee Neil Gorsuch, who wrote that any changes to the law should come from the U.S. Congress, not the court.
The law applies only to companies that collect money on behalf of others, not businesses like Santander that collect debt bought from other companies after it fell into default, the justices ruled.
Santander, which said it was pleased with the ruling, is a Dallas-based consumer finance company specializing in car loans, owned in part by a subsidiary of Banco Santander, the euro zone's second-largest bank by market value.
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.
The plaintiffs' attorney, Cory Zajdel, said Monday's ruling is bad for consumers "as the Supreme Court has once again decided that big banks are above the law."
The $11.4 billion-dollar debt collection industry is one of the top sources of complaints to state attorneys general and the federal Consumer Financial Protection Bureau.
The industry has evolved greatly since that law was enacted in 1977 to prohibit collectors from using abusive, unfair or deceptive practices to recoup money. In particular, companies that buy delinquent debt from the original lenders and then try to collect it from the borrowers now generate about a third of industry revenue.
The Richmond, Virginia-based 4th U.S. Circuit Court of Appeals upheld the lawsuit's dismissal last year, saying the law applied only to debt collectors, and Santander became a creditor when it purchased the loans. Creditors are not subject to the law.
On Monday, Gorsuch wrote that the law does not distinguish between original lenders and debt buyers.
"So a company collecting purchased default debt for its own account - like Santander - would hardly seem to be barred from qualifying as a creditor under the statute's plain terms," Gorsuch wrote, adding that only Congress has the power to change that if lawmakers want to do so.
The plaintiffs had claimed that if the law were to be interpreted in this way, unscrupulous debt collectors could evade the law merely by buying debt.
Kristen Clarke, executive director of the Lawyers' Committee for Civil Rights Under Law, said the ruling will lead to more debt buying as a means to circumvent the law. Its affects will be felt primarily among the poor and minorities who are "especially vulnerable" to abusive collection practices, she said.
The plaintiffs were supported by a group of 28 states including Oregon and Florida as well as the District of Columbia, which said in legal papers that consumers see no difference between debt buyers and debt collectors and should be protected from unscrupulous tactics by both.
Reporting by Andrew Chung; Editing by Will Dunham