In Obduskey v. McCarthy & Holthus LLP, the U.S. Supreme Court resolved the circuit split on whether those engaged in nonjudicial foreclosure proceedings are subject to all of the requirements and prohibitions of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692 et seq. The Court ruled that those engaged solely in nonjudicial foreclosure proceedings are not debt collectors under the FDCPA, except for the limited purpose of Section 1692f(6), which regulates enforcement of security interests. In doing so, the Supreme Court threaded carefully to avoid a conflict between state nonjudicial foreclosure laws and the FDCPA.
The FDCPA’s definition of “debt collector” and the conflict between the FDCPA and state law drove the Court’s decision in Obduskey. First, the Supreme Court noted that the definition of “debt collector” has two parts, one of which is a “limited purpose” definition of the term. This limited purpose definition applies for purposes of the subsection of the FDCPA regulating enforcement of security interests. For those purposes, the FDCPA defines “debt collector” to “also include” any business “the principal purpose of which is the enforcement of security interests.” The Court found that the use of the word “also” in the limited purpose definition “strongly suggests that one who does no more than enforce security interests does not fall within the scope of the general definition.” The Court interpreted this limited purpose definition as an indication that Congress did not intend to include those solely enforcing a security interest within the general definition of “debt collector” in the FDCPA.
Second, the Court looked to the conflict between federal law and state law that would be created by a contrary ruling to support its reading of the FDCPA. The Court acknowledged 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.” The Court sought to harmonize state nonjudicial foreclosure schemes with the FDCPA’s broad protections against abusive debt collection practices. The imposition of FDCPA liability for merely following the requirements of state nonjudicial foreclosure law would do little to nothing to advance the purposes of the FDCPA and would only interfere with a state’s ability to establish a system of nonjudicial foreclosures. Indeed, many of the requirements of state nonjudicial foreclosure schemes that could potentially run afoul of the FDCPA actually serve (or could be construed to serve) to protect debtors from abusive collection practices during the nonjudicial foreclosure procedure. The Court recognized as much, finding that “state nonjudicial foreclosure laws provide various protections designed to prevent sharp collection practices and to protect homeowners, … [a]nd some features of these laws are in tension with aspects of the [FDCPA].” While the Court observed that many of the conflicts between state law and the FDCPA could be resolved, it also noted that the language employed by Congress in defining a “debt collector” makes it possible that “Congress wanted to avoid the risk of such conflicts altogether.” Overall, the Court was convinced that both the language of the FDCPA and policy supported a reading of the FDCPA that would avoid conflicts between nonjudicial foreclosure state laws and the FDCPA.
Those engaged in nonjudicial foreclosures, however, must still be wary of the FDCPA. The Court’s decision does not take those enforcing security interests entirely out of the scope of the broad FDCPA prohibitions. The Court’s holding was in part premised on the fact that the defendant did nothing more than that which was required by Colorado’s nonjudicial foreclosure law. Due to this critical fact, the Court cautioned that its holding does not “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 [FDCPA].” As a result, even after Obduskey, those engaged in nonjudicial foreclosure proceedings should still take into account the FDCPA and how it may impact efforts to enforce a security interest through nonjudicial foreclosure.