SCOTUS Issues Obduskey Opinion: Law Firm Engaged in Non-Judicial Foreclosure Is Not Subject to the FDCPA — Unless It Engages In Activities That Would Otherwise Qualify It As A Debt Collector

In Obduskey v. McCarthy & Holthus, LLP, the SCOTUS issued its opinion finding that a law firm engaged in non-judicial foreclosure was not a “debt collector” under the FDCPA.  We post below from the SCOTUS’ syllabus.

Law firm McCarthy & Holthus LLP was hired to carry out a nonjudicial foreclosure on a Colorado home owned by petitioner Dennis Obdus- key. McCarthy sent Obduskey correspondence related to the foreclo- sure. Obduskey responded with a letter invoking a federal Fair Debt Collection Practices Act (FDCPA or Act) 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 veri- fication of the debt” and mails a copy to the debtor. Instead, McCar- thy initiated a nonjudicial foreclosure action. Obduskey sued, alleg- ing that McCarthy failed to comply with the FDCPA’s verification procedure. The District Court dismissed on the ground that McCar- thy was not a “debt collector” within the meaning of the FDCPA, and the Tenth Circuit affirmed.  Held: A business engaged in no more than nonjudicial foreclosure pro- ceedings is not a “debt collector” under the FDCPA, except for the limited purpose of §1692f(6). Pp. 6–14.

(a) The FDCPA regulates “‘debt collector[s].’” §1692a(6). Relevant here, the definition of debt collector has two parts. The Act first sets out the primary definition of the term “debt collector”: a “ ‘debt collec- tor,’ ” it says, is “any person . . . in any business the principal purpose of which is the collection of any debts, or who regularly collects or at- tempts to collect, directly or indirectly, debts.” Ibid. The Act then sets forth the limited-purpose definition, which 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.” It is undisputed that McCarthy is, by virtue of its role enforcing security interests, at least subject to the specific prohibitions contained in §1692f(6). But only if McCarthyfalls within the primary definition’s scope do the Act’s other provi- sions, including those at issue here, apply. Pp. 6–7.

(b) Three considerations lead to the conclusion that McCarthy is not subject to the Act’s main coverage. First, and most decisive, is the text of the Act itself. The limited purpose definition says that “[f]or the purpose of section 1692f(6)” a debt collector “also includes” a business, like McCarthy, “the principal purpose of which is the en- forcement of security interests.” §1692a(6) (emphasis added). This 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. By contrast, under a reading that gives effect to every word of the limited-purpose definition, the FDCPA’s debt-collector-related prohi- bitions (with the exception of §1692f(6)) do not apply to those who, like McCarthy, are engaged in no more than security-interest en- forcement. Second, Congress may well have chosen to treat security- interest enforcement differently from ordinary debt collection in order to avoid conflicts with state nonjudicial foreclosure schemes. Third, this Court’s reading is supported by legislative history, which suggests that the Act’s present language was the product of a com- promise 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. Pp. 7–10.

(c) Obduskey’s counterarguments are unconvincing. First, he suggests that the limited-purpose definition is not superfluous because it was meant to cover “repo men”—a category of security-interest en- forcers who he says would not otherwise fall within the primary defi- nition of “debt collector.” The limited-purpose definition, however, speaks broadly of “the enforcement of security interests,” §1692a(6), not “the enforcement of security interests in personal property.” Sec- ond, Obduskey claims that the Act’s venue provision, §1692i(a), which covers legal actions brought by “debt collectors” to enforce in- terests in real property, only makes sense if those who enforce security interests in real property are debt collectors subject to all prohibi- tions and requirements that come with that designation. The venue provision, however, does nothing to alter the definition of a debt col-lector. Third, Obduskey argues that McCarthy engaged in more than security-interest enforcement by sending notices that any ordinary homeowner would understand as an attempt to collect a debt. Here, however, the notices sent by McCarthy were antecedent steps required under state law to enforce a security interest, and the Act’s (partial) exclusion of “the enforcement of security interests” must also exclude the legal means required to do so. Finally, Obduskey fears that this Court’s decision will permit creditors and their agents to engage in a host of abusive practices forbidden by the Act. But the Court must enforce the statute that Congress enacted, and Congress is free expand the FDCPA’s reach if it wishes. Pp. 10–14.  879 F. 3d 1216, affirmed.

The big caution from the SCOTUS is that the Firm would have remained subject to section 1692f(6), but would not be subject to the other provisions of the Act so long as it did not drive outside the lane and engage in conduct that otherwise would constitute trigger the Act.

No one here disputes that McCarthy is, by virtue of its role enforcing security interests, at least subject to the specific prohibitions contained in §1692f(6). The question is whether other provisions of the Act apply. And they do if, but only if, McCarthy falls within the scope of the Act’s primary definition of “debt collector.” . . . And because he who wills the ends must will the necessary means, we think the Act’s (partial) exclusion of “the enforcement of security interests” must also exclude the legal means required to do so. This is not to suggest that pursuing nonjudicial foreclosure is a license to engage in abusive debt collection practices like repetitive nighttime phone calls; enforcing a security interest does not grant an actor blanket immunity from the Act. But given that we here confront only steps required by state law, we need not consider what other conduct (related to, but not required for, enforcement of a security interest) might transform a security-interest enforcer into a debt collector subject to the main coverage of the Act.