SCOTUS Determines Foreclosure Firm is Not a Debt Collector Under the FDCPA's Primary Definition

Less than three months after hearing oral arguments in Obduskey v. McCarthy & Holthus LLP, Case No. 17-1307, the United States Supreme Court held, in a 9-0 decision, that a business engaged in nonjudicial foreclosure proceedings is not a "debt collector" under the Fair Debt Collection Practices Act (FDCPA, "the Act"), except for the limited prohibitions set forth in 1692(f)(6). The decision provides helpful guidance to law firms and loan servicers who pursue nonjudicial foreclosures.

The Court focused primarily on the plain language of the Act, noting that while the definition of "debt collector" is broad enough to encompass those enforcing a mortgage security interest, because 1692(f)(6) states that a "debt collector" "also includes" a business "the principal purpose of which is the enforcement of security interest," the Act's primary definition of "debt collector" does not include such an entity.  To read the Act's primary definition of "debt collector" as including entities seeking to enforce security interests would render 1692(f)(6) superfluous. In further support of this reading, the Court noted that Congress likely sought to avoid conflicts with state nonjudicial foreclosure schemes by limiting the Act's application in relation to entities enforcing security interests. Finally, the Court reviewed the legislative history, which reflects that the FDCPA was enacted through compromise in relation to whether enforcing a security interest should be considered debt collection.

In addition to providing guidance to law firms and loan servicers who pursue nonjudicial foreclosures, the decision resolves the existing conflicts between the federal circuits. Previously, the 9th and 10th Circuits held that the FDCPA's general definition of "debt collector" does not apply to entities seeking to enforce a security interest in a nonjudicial foreclosure and the 3rd, 4th, and 5th Circuits held that the FDCPA governed nonjudicial foreclosures.