On March 20, 2019, the Supreme Court issued its much-anticipated decision in Obduskey v. McCarthy & Holthus LLP, concluding that a business primarily engaged in nonjudicial foreclosures does not come within the general definition of a “debt collector” under the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (“FDCPA”). Rather, such a firm is covered by what the Supreme Court dubbed the “limited-purpose definition” of “debt collector,” subjecting it to only limited duties under the FDCPA.
When Obduskey defaulted on his home loan, his lender hired the law firm McCarthy & Holthus LLP (“McCarthy”) to carry out a nonjudicial foreclosure. After McCarthy allegedly failed to comply with the FDCPA’s mandate to cease collection until it “verified” Obduskey’s debt, Obduskey filed suit. The district court dismissed the suit, finding that McCarthy was not a “debt collector” under the FDCPA and, thus, was not obligated to cease collection and verify Obduskey’s debt. The Tenth Circuit affirmed and Obduskey sought certiorari. The Supreme Court granted review to address the differing opinions among the Third, Fourth and Sixth Circuits, on the one hand, and Ninth and Tenth Circuits, on the other hand, regarding the FDCPA’s application to nonjudicial foreclosures.
In a unanimous decision, authored by Justice Breyer, the Supreme Court affirmed the Tenth Circuit. The Supreme Court first agreed with the Third, Fourth and Sixth Circuits that the challenged conduct undoubtedly constituted indirect debt collection, as defined under the FDCPA, but could not agree with those circuits and Obduskey that McCarthy was a “debt collector” under the FDCPA. In 15 U.S.C. § 1692a(6) — what the Supreme Court calls the “primary definition” — the FDCPA defines a “debt collector” as “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 owed or due or asserted to be owed or due another.”
However, the same section further provides that “[f]or the purpose of section 1692f(6) of this title, [‘debt collector’] also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests.” Obduskey asserted that McCarthy fell within the primary definition, subjecting it to the FDCPA’s myriad requirements. McCarthy, on the other hand, asserted that it fell within the latter, more limited definition, subjecting it only to the requirements of § 1692f(6).
The Supreme Court agreed with McCarthy, holding that a business engaged primarily in security-interest enforcement falls within the limited-purpose definition because the word “also” strongly suggests that “one who does no more than enforce security interests does not fall within the scope of the general definition.” Otherwise, the Court held, there exists no purpose for including the limited-purpose definition because, if a security-interest enforcer fell within the primary definition, it would render the limited-purpose definition superfluous.
Confirming its interpretation, the Supreme Court commented that Congress may well have chosen to treat security-interest enforcement differently from general debt collection to avoid conflicts with state nonjudicial foreclosure statutory schemes, some of which are in place for the debtor’s benefit. Further, the Supreme Court noted that the FDCPA’s legislative history evinced conflicting proposals, one including security-interest enforcers in the primary definition of “debt collector” and one excluding security-interest enforcers from the mandates of the FDCPA altogether. The Supreme Court viewed the present language as a compromise, subjecting security-interest enforcers only to § 1692f(6).
In rejecting Obduskey’s arguments, the Supreme Court cautioned that its opinion was not a license to engage in abusive debt collection practices under the guise of nonjudicial foreclosure. In a concurring opinion, Justice Sotomayor invited Congress to clarify the FDCPA if the Supreme Court’s interpretation was mistaken, reiterating that security-interest enforcers may not otherwise engage in abusive debt collection practices. However, absent further word from Congress, firms whose principal business purpose is security-interest enforcement — such as nonjudicial foreclosure firms like McCarthy — are subject only to the mandates of § 1692f(6).
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