Obduskey v. McCarthy: A Supreme Ruling on the Limits of the Fair Debt Collection Practices Act in Non-Judicial Foreclosure Proceedings

On March 20, 2019, the United States Supreme Court (“Court”), in a unanimous (9-0) decision in Obduskey v. McCarthy & Holthus LLP, 586 U.S. ___ (2019), held that a business engaged in no more than non-judicial foreclosure proceedings is not a “debt collector” under the federal Fair Debt Collection Practices Act (“FDCPA”), except for the limited purpose of §1692f(6). In this case, a law firm was hired to perform a non-judicial foreclosure on a property. When the law firm sent the property owner correspondence related to the foreclosure, the property owner responded with a letter invoking an FDCPA provision, 15 U. S. C. §1692g(b), which provides that if a consumer disputes the amount of a debt, a “debt collector” must “cease collection” until it “obtains verification of the debt” and mails a copy to the debtor. The firm neither ceased collecting on the debt nor provided verification but, instead, proceeded with a non-judicial foreclosure action. The property owner sued, alleging that the law firm failed to comply with the FDCPA’s verification procedure.

As context, the FDCPA regulates the collection of debts and sets forth a definition for “debt collector,” the two parts of which the Court coined (1) primary definition and (2) limited-purpose definition. The primary definition of the term “debt collector” is “any person . . . 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.” The limited-purpose definition states that “[f]or the purpose of section 1692f(6) . . . [the] term [debt collector] also includes any person . . . in any business the principal purpose of which is the enforcement of security interests” (i.e. a mortgage or deed of trust). §1692a(6). The subsection to which the limited-purpose definition refers, §1692f (6), prohibits “[t]aking or threatening to take any nonjudicial action to effect dispossession or disablement of property if (A)  there is no present right to possession of the property claimed as collateral through an enforceable security interest; (B)  there is no present intention to take possession of the property; or (C)  the property is exempt by law from such dispossession or disablement. The Court determined that, while it is undisputed that the law firm is, by virtue of its role enforcing security interests, at least subject to the specific prohibitions contained in §1692f(6), the other provisions of the FDCPA do not apply unless the firm falls within the scope of the FDCPA’s primary definition of “debt collector” which the law firm does not.

The Court made several considerations, including the plain language of the statute, Congressional intent, and legislative history, in determining that the law firm was not subject to the other provisions of the FDCPA. The most decisive of the Court’s considerations, however, was the plain language of the statute. This case turns on two sentences that, put together, read in relevant part: “(1) The term ‘debt collector’ means any person . . . 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 . . . (2) For the purpose of section 1692f(6) of this title, such term also includes any person . . . in any business the principal purpose of which is the enforcement of security interests.” The Court recognized that, if the primary definition were the only text before the Court, nonjudicial foreclosure plainly would qualify as debt collection. By contrast, however, under a reading that gives effect to every word of the limited-purpose definition, the FDCPA’s debt-collector-related prohibitions (with the exception of §1692f(6)) do not apply to those who, like the law firm, are engaged in no more than security-interest enforcement.

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