On March 20, 2019, the Supreme Court unanimously ruled in Obduskey v. McCarthy & Holthus LLP that a business engaged in non-judicial foreclosure is not subject to all of the requirements and prohibitions applicable to “debt collectors” under the Fair Debt Collections Practices Act (FDCPA). Instead, the Court held that a business pursuing non-judicial foreclosure is subject only to specific FDCPA prohibitions related to non-judicial actions to take possession of property. Although the decision settles a dispute among U.S. Circuit Courts of Appeal on the FDCPA’s application to the enforcement of security interests, the Court’s opinion, and Justice Sotomayor’s concurring opinion, make clear that the ruling is limited to situations where a business’s actions are required by state law governing enforcement of security interests.
The case began when McCarthy & Holthus LLP (“McCarthy”), as Wells Fargo’s agent, notified Dennis Obduskey that it would begin a non-judicial foreclosure against Obduskey’s home. Obduskey disputed the debt and invoked FDCPA § 1692g(b), which requires a debt collector to cease collection and verify the debt before proceeding. McCarthy then initiated non-judicial foreclosure under Colorado law. Obduskey sued McCarthy arguing that it violated § 1692g(b). Both the U.S. District Court for Colorado and 10th Circuit Court of Appeals ruled that McCarthy was not a “debt collector” as defined in § 1692a(6) and therefore was not required to comply with § 1692g(b)’s cease-collection and verification procedures.
The Supreme Court affirmed the lower courts’ rulings on three bases: (i) the text of the definition of “debt collector” in § 1692a(6); (ii) Congress’s likely desire to avoid conflicts between the FDCPA and state non-judicial foreclosure proceedings; and (iii) the FDCPA’s legislative history. The Court cautioned that its decision only covered a business taking steps required by state law to enforce a security interest, and that it was not giving businesses pursuing non-judicial foreclosure “license to engage in abusive debt collection practices such as repeated nighttime phone calls.” Justice Sotomayor’s concurring opinion emphasized the decision’s limits, stating, “I would see as a different case one in which the defendant went around frightening homeowners with the threat of foreclosure without showing any meaningful intention of ever actually following through. There would be a question, in such a case, whether such an entity was in fact a ‘business the principal purpose of which is the enforcement of security interests,’ . . . or whether it was simply using that label as a stalking horse for something else.”