Co-Authored by Kirsten Pagel, Briggs and Morgan Associate.
On Wednesday, March 20, 2019, the Supreme Court ruled, in Obduskey v. McCarthy & Holthus LLP, that a business engaged in nonjudicial foreclosure proceedings is not a “debt collector” under the Fair Debt Collection Practices Act (“FDCPA”), except for the limited purpose of 15 U.S.C. § 1692f(6) as specified by 15 U.S.C. § 1692a(6).
The decision to affirm the district court was unanimous, with Justice Breyer writing for the majority. Justice Sotomayor filed a separate, concurring opinion. The Court’s opinion may be found here.
In 2007, Dennis Obduskey purchased a home with a loan secured by that home. By 2009, Obduskey had defaulted on that loan. Wells Fargo Bank, N.A., the servicer of that loan, began nonjudicial foreclosure proceedings through its counsel McCarthy Holthus LLP (“McCarthy”). McCarthy sent Obduskey a notice in 2014 that listed various details about Obduskey’s loan. Obduskey responded to the 2014 notice by challenging the debt pursuant to the FDCPA. McCarthy did not proceed by following the FDCPA’s procedures, and, instead, initiated a new nonjudicial foreclosure in 2015. Obduskey sued McCarthy, alleging that McCarthy was a debt collector and had violated the FDCPA and Colorado law.
The FDCPA defines “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 …. 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.” 15 U.S.C. § 1692a(6).
McCarthy successfully moved to dismiss on the grounds that McCarthy was not acting as a debt collector, and, thus, the FDCPA does not apply to it; the Tenth Circuit agreed and affirmed the decision noting that the “mere act of enforcing a security interest through a non-judicial foreclosure proceeding does not fall under” the FDCPA.
The Supreme Court affirmed the district court’s dismissal, holding that “but for § 1692f(6), those who engage in only nonjudicial foreclosure proceedings are not debt collectors within the meaning of the [FDCPA].”
The Court noted that text of the FDCPA itself is the strongest basis for its decision. The Court explained that because § 1692a(6) provides that “for the purpose of section 1692f(6) of this title [a debt collector] also includes [a business] the principal purpose of which is the enforcement of security interests,” one who does no more than enforce security interests is not a debt collector for any section but section 1692f(6). As such, the Court held that the FDCPA does not apply to those who are engaged in no more than the enforcement of security interests, like nonjudicial foreclosure, except for the limited purpose of 15 U.S.C. § 1692f(6).