Supreme Court defines ‘debt collector’ under Fair Debt Collection Practices Act
Supreme Court defines ‘debt collector’ under Fair Debt Collection Practices Act

The US Supreme Court ruled unanimously Wednesday in Obduskey v. McCarthy & Holthus LLP that a business is not a “debtor collector” under the Fair Debt Collection Practices Act, except in enforcing security interest under 15 USC §1692f(6).

Homeowner and political activist Dennis Obduskey sued law firm McCarthy & Holthus when they attempted to carry out a nonjudicial foreclosure on his Colorado home. McCarthy sent letters regarding the foreclosure, to which Obduskey responded that the law firm was disregarding 15 USC §1692g(b) verification procedure and disputed the debt.

This case clarified the disagreement among lower courts as to whether the FDCPA applied to non-judicial foreclosure proceedings. Debt collectors and banks prefer non-judicial foreclosure proceedings because it accelerates the timeline of the process. However, for the thousands of homeowners in financial crisis in the 29 states that allow non-judicial foreclosure proceedings, a decision that a business is a debtor collector could have provided relief.

However, the court was unconvinced by Obduskey’s argument and instead relied on the FDCPA text itself and legislative history, to come to the conclusion that: ” those whose ‘principal purpose … is the enforcement of security interests’ outside the scope of the primary ‘debt collector’ definition, §1692a(6), where the business is engaged in no more than the kind of security-interest enforcement at issue here—nonjudicial foreclosure proceedings.”

Justice Stephen Breyer authored the decision, and Justice Sonia Sotomayor filed a concurring opinion. Sotomayor appealed to Congress to clarify if the Supreme Court interpreted the statute incorrectly and further, says this decision does not provide “blanket immunity” for abusive debt collection practices.