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Logic and the Repo Man: SCOTUS holds that nonjudicial foreclosure firms are not “debt collectors” under the FDCPA

On March 20, 2019, the U.S. Supreme Court resolved a circuit split over whether businesses engaged only in nonjudicial foreclosures—a business principally involved in the enforcement of security interests—is a “debt collector” under the Fair Debt Collection Practices Act (“FDCPA”). The opinion is available here.

The case is Obduskey v. McCarthy & Holthus LLP, No. 17-1307. In 2007, Obduskey bought a home with a loan secured by the property. About two years later, he defaulted.  The lender hired a law firm to execute a nonjudicial foreclosure on the home.  The law firm sent Obduskey a letter related to the foreclosure. Obduskey said that the letter violated Section 1692g(b) of the FDCPA, which provides that a “debt collector” must “cease collection” until it “obtains verification of the debt” and mails a copy of the verification to the debtor. The law firm nonetheless initiated a nonjudicial foreclosure sale, and Obduskey brought suit, contending that the law firm violated the FDCPA’s verification procedure. The district court dismissed, holding that the law firm was not a “debt collector” within the meaning of the FDCPA. The Tenth Circuit affirmed.

The FDCPA defines a “debt collector” to be “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.” 15 U.S.C. §1692a(6). This definition adds that “[f]or the purpose of section 1692f(6)” (a separate provision of the FDCPA), “[the] term [debt collector] also includes any person . . . in any business the principal purpose of which is the enforcement of security interests.” The U.S. Supreme Court discussed a circuit split, with some courts of appeals holding that the text of the statute provided that for purposes other than §1692f(6), a business principally engaged in enforcement of security interests was not a “debt collector.” Other circuits held that such a business is a debt collector for all provisions of the FDCPA.

The Court in Obduskey focused on the statutory language. By saying that, for a limited purpose, the term “debt collector” also includes businesses enforcing security interests, Congress strongly suggested that a business “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, slip op. at p.8. The Court stated that “[i]t is logically, but not practically, possible that Congress simply wanted to emphasize that the definition of “debt collector” includes those engaged in the enforcement of security interests. But why then would Congress have used the word ‘also’?” Ibid.

Obduskey argued that the limited purpose definition discussing security-interest enforcement was meant to cover only personal property – the “repo man.” The Court disagreed, holding that if Congress wanted to exclude only the repo man from the FDCPA, it could have inserted “in personal property” in the limited purpose definition.

Justice Stephen Breyer delivered the unanimous opinion of the Court. Justice Sonia Sotomayor wrote a concurring opinion, in which she expressed concern that Congress did not fully intend for the statute to be interpreted the way the Court was interpreting it. She also took the opportunity to expound on the narrowness of the case before the Court, as a caution to those in the debt collection/foreclosure industry that they are not necessarily given blanket immunity from the FDCPA.

The case is a certain and likely relieving victory to businesses and firms principally engaged in the enforcement of security interests.

Authored by: E. Barney Robinson, III and John H. Dollarhide