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Supreme Court: Non-judicial Foreclosures Are Exempt from FDCPA's Main Provisions

Today the Supreme Court held that non-judicial foreclosure proceedings are not subject to the general provisions of the Fair Debt Collection Practices Act.  The Court’s unanimous decision in Obduskey v. McCarthy & Holthus LLP is available here

As previously covered, the case involved a non-judicial foreclosure in Colorado.  After the foreclosing law firm sent him numerous notices, Obduskey disputed the debt by invoking protections under the FDCPA.  When the law firm did not respond, Obduskey sued.  He alleged violations of the FDCPA provisions governing the debt validation process, communicating with third parties, harassing or abusive tactics, false or misleading representations and unfair practices.  The trial court dismissed Obduskey's complaint and held that the enforcement of a security interest through a non-judicial foreclosure process does not constitute debt collection under the FDCPA.  The Tenth Circuit affirmed the dismissal and, today, the Supreme Court affirmed. 

In doing so the high court focused on the limited-purpose definition of a debt collector under the statute:  “For the purpose of section 1692f(6) of this title, [the term “debt collector”] also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests.”  15 U.S.C. § 1692a. 

The Court, in a 9-0 decision authored by Justice Breyer, stressed:

“This phrase, particularly the word ‘also,’ strongly suggests that one 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?”

Backing up its conclusion the Court appealed to (1) Congress’s apparent desire to differentiate security interest enforcement from ordinary debt collection in deference to state law; and (2) the legislative history of the FDCPA indicating that the limited-purpose definition was a creature of compromise between those who wanted to entirely exclude security enforcement activity and those who wanted it covered under the FDCPA. 

Importantly, the Court stressed that while security enforcement activity is not subject to the FDCPA’s general provisions, it is subject to the provisions of section 1692f(6) (which were not at issue in the Obduskey case). 

Mark RooneyFDCPA, Obduskey