Supreme Court Holds the FDCPA Does Not Apply to Nonjudicial Foreclosures

Robert Loughran
Apr 17 2019

The United States Supreme Court unanimously held that a person engaged in nonjudicial foreclosure proceedings is not a debt collector under the federal Fair Debt Collection Practice Act (“FDCPA”). 15 U.S.C § 1962a(6), where “debt collector” is defined, has two parts, a general definition and a limited-purpose definition. The general definition states that “any person . . . in any business the principal purpose of which is the collection of any debt, or who regularly collects or attempts to collect directly or indirectly, debts.” Under this general definition, a law firm pursuing judicial foreclosure is considered a debt collector for the purpose of the FDCPA. The second part of the definition, which the Court refers to as the limited-purpose definition, is contained in the third sentence of Section 1962a(6), it states “[f]or the purpose of section 1692f(6) [governing an individual’s conduct who is engaged in repossessing property nonjudicially] . . . [the] term [debt collector] also includes any person . . . in any business the principal purpose of which is the enforcement of security interests.” Section 1692(f) does not levy the entirety of the FDCPA on those enforcing security interests, but merely prohibits activities such as threatening to take nonjudicial action when there is no present intent or right to take possession of the property.

At issue in Obduskey v. McCarthy & Holthus LLP was whether someone engaged in only nonjudicial foreclosure falls within the general or limited-purpose definition. The case was granted certiorari to resolve a circuit split on this issue. The Fourth, Fifth, and Sixth Circuits have held that in nonjudicial foreclosure cases the FDCPA applies, while the Ninth and Tenth Circuits have ruled that the act does not apply.

The Court resolved the issue based on three considerations. First, and most dispositive, Justice Breyer, writing for the Court, relies on the rule against surplusage. The Court concedes that if the Act only contained the first part of the definition than a business engaged in nonjudicial foreclosure would fall under the FDCPA for all purposes. However, the Act does contain the second part of the definition, and the Court found its presence insurmountable. The Court points to the presence of the phrase “also includes” in the limited-purpose clause strongly suggests that Congress did not intend for someone who does no more than enforce a security interest does not fall within the scope of the general definition. Otherwise, the presence of this language would be superfluous. Second, The Court believed that Congress chose to treat security-interest enforcement differently to avoid conflict with states nonjudicial foreclosure schemes. To support this the Court points to the fact that the FDCPA limits debt collectors from communicating with third parties “in connection with the collection of any debts. § 1692c(b). However, if this rule applied to nonjudicial foreclosures then advertising a foreclosure sale would run afoul of the FDCPA which would be to the detriment of the debtor. Third, the Court looked at the legislative history, which Breyer says “supports our reading.” Based on these reasons the Supreme Court unanimously held that the FDCPA as drafted does not apply to nonjudicial foreclosures.