U.S. Supreme Ct. limits FDCPA applicability in nonjudicial foreclosures

Addressing the scope of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692, et seq., in Obduskey v. McCarthy & Holthus LLP, the U.S. Supreme Court held that “those who engage in only nonjudicial foreclosure proceedings are not debt collectors within the meaning of the Act,” save for § 1692f(6), which prohibits certain conduct in “effect[ing] dispossession or disablement of property.”  On the other hand, the bulk of the FDPCA’s prohibitions, including § 1692g(b)’s verification requirement, did not apply to Law Firm.

 A copy of the opinion is available here.


After Borrower defaulted on his mortgage loan, the lender hired a Foreclosure Law Firm to pursue a non-judicial foreclosure against Borrower’s Colorado property.  The Foreclosure Firm sent Borrower a written foreclosure notice, purportedly pursuant to the FDCPA and Colorado law.  In response, Borrower sent the Foreclosure Firm a letter demanding verification of the debt under § 1692g(b) of the FDCPA.  Allegedly without verifying the debt as required by the FDCPA, Law Firm proceeded with a non-judicial foreclosure pursuant to Colorado state law, including, inter alia, filing a required notice of election and demand with the county public trustee.

 Borrower sued the Foreclosure Firm, alleging that by proceeding with the non-judicial foreclosure, it had violated the FDCPA by failing to cease collection and provide verification of the debt as required by 15 U.S.C. § 1692g(b).  The trial court dismissed the action, determining that the Foreclosure Firm was not a “debt collector” under the FDCPA.  The U.S. Court of Appeals for the Tenth Circuit affirmed, holding that the “mere act of enforcing a security interest through a non-judicial fore­closure proceeding does not fall under” the FDCPA.

Given contrary opinions from other circuit courts of appeals, including the Fourth Circuit, the Supreme Court granted certiorari to resolve a circuit split regarding the FDPCA’s application to non-judicial foreclosures.


 Affirming the dismissal, the Supreme Court agreed that Foreclosure Firm did not meet the definition of a debt collector for purposes of being liable for verification of the debt under of § 1692g(b).  Parsing the definition of “debt collector” under § 1692a(6), the Court observed that the “primary definition” was

 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 owed or asserted to be owed or due another.

 Op. at 6. 

However, under the third sentence of § 1692a(6), the Court noted that there was a “limited-purpose definition,” which qualified that:

 For the purpose of section 1692f(6) [the] term [debt collector] also includes any person . . . in any business the principal purpose of which is the enforcement of security interests.

Op. at 6. 

The referenced provision under the “limited purpose definition, i.e., § 1692f(6), prohibits a “debt collector” from:

[t]aking or threatening to take any nonjudicial action to effect dispossession or disablement of property if (A) there is no present right to possession of the property . . .; (B) there is no present intention to take possession of the property; or (C) the property is exempt by law from such dis­possession or disablement.

 Op. at 6-7. 

 Under that scheme, the Foreclosure Firm argued that, while it was subject to § 1692f(6) due to its role enforcing securing interests, it did not fall under the FDPCA’s numerous other provisions governing debt collectors (including § 1692g(b)) because the “primary definition” of “debt collector” did not apply.

Agreeing with the Foreclosure Firm’s analysis, the Court held that it was not subject to the “main coverage” of the FDCPA.  Op. at 7.  First, as a matter of statutory interpretation, the Court noted that the added third sentence of § 1692a(6) — 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?”  Op. at 8.  Indeed, if the “limited-purpose” definition were absent, those engaged in non-judicial foreclosure proceedings would still qualify as debt collectors under the “primary definition,” as foreclosure is a means of collecting a debt.  Op. at 7.  Explaining that statutes are presumed not to contain surplusage, the Court concluded that the “limited-purpose” definition effectively narrows the “primary definition,” such that the “debt-collector-related pro­hibitions of the FDCPA (with the exception of §1692f(6)) do not apply to those who, like [Foreclosure Firm], are engaged in no more than security-interest enforcement.”  Op. at 9 (emphasis in original).

The Court also observed that, in drafting the FDCPA, Congress “may well have chosen to treat security-interest enforcement differently from ordi­nary debt collection in order to avoid conflicts with state nonjudicial foreclosure schemes.”  Op. at 9.  For instance, Colorado’s requirement that a foreclosure sale be advertised (a common aspect of non-judicial foreclosure processes nationwide) would risk tension with the FDPCA’s broad limits on debt collectors’ communications with third parties.  Op. at 9; see also 15 U.S.C. § 1692c(b).  The statute’s legislative history also suggested that Congress rejected a version of the Act that grouped the “primary” and “limited-purpose” definitions together in a single provision.  Op. at 10.

The Court rejected several of Borrower’s arguments to the contrary, most notably that Foreclosure Firm engaged in more than merely “enforcing a security interest” in sending him written notices threatening foreclosure, and so fell within the “primary” definition of “debt collector.”  Op. at 13.  The Court disagreed, stating:

[W]e assume that the notices sent by [Foreclosure Firm] were antecedent steps required under state law to enforce a security interest . . . Indeed, every nonjudicial foreclosure scheme of which we are aware involves notices to the homeowner . . . And because he who wills the ends must will the necessary means, we think the Act’s (partial) exclusion of “the enforcement of security interests” must also exclude the legal means required to do so.

Op. at 13.  However, the Court was careful to note:

This is not to suggest that pursuing nonjudicial foreclosure is a license to engage in abusive debt collection practices like repetitive nighttime phone calls; enforcing a security interest does not grant an actor blanket immunity from the Act. But given that we here confront only steps required by state law, we need not consider what other conduct (related to, but not required for, enforcement of a security interest) might transform a security-interest enforcer into a debt collector subject to the main coverage of the Act.

 Op. at 13-14.  As for the fear that the Court’s decision would open a loophole to engage in abusive collection practices, the Court relied upon state protections already in place to govern the nonjudicial foreclosure process, and further noted that Congress could choose to expand the FDCPA’s scope if necessary.  Op. at 14.

 In a concurring opinion, Justice Sotomayor noted that the Court’s opinion only covered those security enforcement actions including “steps required by state law” for non-judicial foreclosure, and would not protect other abusive debt collection practices.  Conc. Op. at 3.