March 20, 2019
Authored by: Zina Gabsi
Editor’s Note: BCLP’s consumer financial services team is a group of specialized lawyers from around the U.S., adept in state court rumbles, courthouse steps foreclosures, and bankruptcy court interludes. They are also deep thinkers in consumer law, and were waiting for this ruling today. If you have a portfolio of consumer loans and want some efficient, value-maximizing handling, give us a call. Here’s the take from Zina Gabsi, from our Miami CFS practice.
Earlier today, the U.S. Supreme Court issued its long-awaited opinion on whether law firms pursing non-judicial foreclosures are “debt collectors” as defined by the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §1692 et seq. Obduskey v. McCarthy & Holthus LLP, Case No. 17-1307 (March 20, 2019). In its ruling, the Court held that a business engaged in no more than a non-judicial foreclosure is not a debt collector under the FDCPA. (Business lawyers around the US breathed a collective sigh of relief.) Instead, the Court held that those pursuing non-judicial foreclosures are subject to the more limited FDCPA restrictions contained in section 1692f(6).
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 asserted to be owed or due another.” 15 U.S.C. §1692a(6). But the statute also includes 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.” Thus, the statute creates a set (debt collectors) and a subset (people that only seek to enforce security interests). The subset certainly includes “repo men,” but according to the Supreme Court, the subset also includes lawyers pursuing non-judicial foreclosures. The subset is subject to far less restrictions and mandates under the FDCPA.
The Court considered three factors in coming to its conclusion: (i) the text of the FDCPA itself; (ii) Congress’s intent; and (iii) the FDCPA’s legislative history. The Court explained that but for the limited-purpose definition (the subset), those pursuing non-judicial foreclosure would in fact be debt collectors under the additional provisions of the FDCPA. However, the Court notes that a plain reading of the limited-purpose definition, “particularly 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 why add this sentence at all?” Obduskey, at page 8. To interpret the definition of a debt collector under the FDCPA otherwise would render the addition of the “limited-purpose definition” superfluous. Id., at page 9. Furthermore, the Court posited that 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.” Id.
Of note, the Court rejected Obduskey’s argument that “McCarthy engaged in more than security-interest enforcement by sending notices that many ordinary homeowner would understand as an attempt to collect a debt backed up by the threat of foreclosure.” Id., at page 13. The Court explained that such notices were likely required under state law in order to pursue the non-judicial foreclosure and therefore the FDCPA’s “(partial) exclusion of ‘the enforcement of security interests’ must also exclude the legal means required to do so.” Id.
Justice Sotomayor wrote a concurring opinion to make two observations: “First, this is a close case, and today’s opinion does not prevent Congress from clarifying this statute if we have gotten it wrong. Second, as the Court makes clear, ‘enforcing a security interest does not grant an actor blanket immunity from the’ mandates of the FDCPA.” She interestingly noted that Congress may not have contemplated the Court’s interpretation because even though States do regulate nonjudicial foreclosures, the FDCPA was enacted “to promote consistent State action to protect consumers against debt collection abuses.”
The holding sheds light (for the moment) on the scope of the limited-purpose exception to the FDCPA’s definition of a debt collector as it relates to nonjudicial foreclosures. “[W]hether those who judicially enforce mortgages fall within the scope of the primary definition is a question we can leave for another day.” Id., at page 12. We will cover that another day too!