Seyfarth Synopsis: In a 9-0 Supreme Court ruling last week, the Court spoke to issues concerning the Fair Debt Collection Practices Act (FDCPA) and non-judicial foreclosures.
The FDCPA is intended to “eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.” 15 U.S.C. § 1692, Congressional Findings and Declarations of Purpose.
In Obduskey v. McCarthy & Holthus LLP, No. 17-1307, 2019 WL 1264579 (U.S. Mar. 20, 2019), the Supreme Court held that a business, such as a law firm, that is principally engaged in the enforcement of a security interest, like non-judicial foreclosure proceedings, is not a “debt collector” under the primary definition of the FDCPA. Rather, the Court held that the law firm at issue came under the ambit of the limited-purpose definition. Entities that meet the primary definition of a debt collector under the FDCPA are subject to a myriad of limitations aimed at protecting consumers.
In reaching its decision, Justice Breyer engaged in a three step statutory analysis of the FDCPA. First, to avoid surplusage, the limited-purpose definition must be read to constrict the primary definition. Next, the Court reasoned that Congress may have chosen to “treat security-interest enforcement differently from ordinary debt collection in order to avoid conflicts with state non-judicial foreclosure schemes.” Finally, the Court held that upon review of the legislative history of the FDCPA, it appears that the limited-purpose definition was a compromise between full inclusion of security interest enforcement and exclusion of the same.
The Court concluded that “in our view, the last sentence does (with its § 1692f(6) exception) place those whose ‘principal purpose … is the enforcement of security interests’ outside the scope of the primary ‘debt collector’ definition, where the business is engaged in no more than the kind of security-interest enforcement at issue here—non-judicial foreclosure proceedings.” By excepting those who principally enforce security interests from the full scope of the FDCPA, the Court also “exclude[d] the legal means required to do so,” including sending pre-foreclosure notices.