Supreme Court answers whether attorneys engaged in non-judicial foreclosure are not debt collectors for purposes of § 1692e and § 1692f of the FDCPA

The facts of Obduskey v. McCarthy & Holthus LLP, No. 17-1307 (U.S. Mar. 20, 2019) are straight-forward. The defendant lawyers were hired to carry out a nonjudicial foreclosure on a Colorado home owned by the petitioner. The lawyers sent a debt validation notice to the petitioner who disputed the debt. Instead of ceasing collection activity the lawyers initiated a nonjudicial foreclosure. Petitioner sued, alleging the lawyers failed to comply with the FDCPA’s verification procedure. The District Court dismissed on the ground that the lawyers were not a “debt collector” within the meaning of the FDCPA, and the Tenth Circuit affirmed.

The Supreme Court affirmed. It noted that the FDCPA has a primary and a limited purpose definition of “debt collector”. The primary definition 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.” 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.” There is no issue that the lawyers were subject to the specific prohibitions contained in § 1692f(6), but the question was whether they were also subject to the other prohibitions of the Act, such as § 1692e (using false and misleading means to collect a debt) and § 1692f (using unfair practices to collect a debt).

The Court concluded that the lawyers were only subject to the specific prohibitions contained in § 1692f(6) because they were not a “debt collector” under the primary definition. The Act says that “[f]or the purpose of section 1692f(6)” a debt collector “also includes” a business, “the principal purpose of which is the enforcement of security interests.” The phrase, particularly the word “also,” strongly suggests that security-interest enforcers do not fall within the scope of the primary definition. If they did, the limited purpose definition would be superfluous.

In addition, the Court found there were sound policy reasons why Congress may have chosen to treat security-interest enforcement differently from ordinary debt collection; to avoid conflicts with state nonjudicial foreclosure schemes. For example, the FDCPA broadly limits debt collectors from communicating with third parties “in connection with the collection of any debt.” But if this rule were applied to nonjudicial foreclosure proceedings, then advertising a foreclosure sale might run afoul of the FDCPA. While it may be possible to resolve these conflicts, it is also possible that Congress wanted to avoid the risk of such conflicts altogether.
Finally, the Court’s reading was supported by legislative history, which suggests that the FDCPA’s present language was the product of a compromise between competing versions of the bill, one which would have totally excluded security-interest enforcement from the Act, and another which would have treated it like ordinary debt collection.

The Court was unmoved by the petitioner’s counterarguments. The suggestion that the limited-purpose definition is not superfluous because it was meant to cover “repo men” was un-convincing because the limited-purpose definition speaks broadly of “the enforcement of security interests,” not just security interests in personal property. Further, the claim that the FDCPA’s venue provision, which covers legal actions brought by “debt collectors” to enforce interests in real property, only makes sense if those enforcers are debt collectors subject to all the FDCPA’s prohibitions, does not alter the definition of a debt collector. Finally, the lawyers did not engage in debt collection by sending notices that were essentially an attempt to collect a debt. The notices were antecedent steps required under state law to enforce a security interest, and the FDCPA’s (partial) exclusion of “the enforcement of security interests” must also exclude the legal means required to do so.

The Court declined to rule on whether those who judicially enforce mortgages fall within the scope of the primary definition. It is “a question we can leave for another day”. But if the judicial action was used solely to enforce a mortgage, and not seek personal liability on the debt, under the Court’s reasoning the lawyer would likely still fall under the limited purpose definition.

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