The US Supreme Court ruled unanimously on March 20, 2019 in Obduskey v. McCarthy & Holthus LLP that a business is not a “debtor collector” under the Fair Debt Collection Practices Act (“FDCPA”), except in enforcing security interest under 15 USC §1692f(6).
The law firm McCarthy & Holthus LLP was hired to carry out a nonjudicial foreclosure on a Colorado home owned by petitioner Dennis Obduskey. McCarthy sent Obduskey correspondence related to the foreclosure. Obduskey responded with a letter invoking a federal FDCPA 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 verification of the debt” and mails a copy to the debtor. Instead, McCarthy initiated a nonjudicial foreclosure action. Obduskey sued, alleging that McCarthy failed to comply with the FDCPA’s verification procedure. The District Court dismissed on the ground that McCarthy was not a “debt collector” within the meaning of the FDCPA, and the Tenth Circuit affirmed.
This case clarifies disagreement among lower courts as to whether the FDCPA applied to non-judicial foreclosure proceedings. Debt collectors and banks prefer non-judicial foreclosure proceedings because it is more expedient and usually cost less than a judicial foreclosure. However, for homeowners in a financial crisis, a decision that a business is a debtor collector could have provided relief by forstalling non-judicial foreclosure proceedings. Ultimately, the court was not convinced by Obduskey’s argument and instead relied on the text of the FDCPA itself and legislative history, to come to the conclusion that:
those whose ‘principal purpose … is the enforcement of security interests’ outside the scope of the primary ‘debt collector’ definition, §1692a(6), where the business is engaged in no more than the kind of security-interest enforcement at issue here—nonjudicial foreclosure proceedings.
Justice Stephen Breyer authored the decision, and Justice Sonia Sotomayor filed a concurring opinion. Sotomayor appealed to Congress to clarify if the Supreme Court interpreted the statute incorrectly and further, says this decision does not provide “blanket immunity” for abusive debt collection practices.