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The Fair Debt Collection Practices Act: How a Mortgage Default May Now Have Affected the Classification of Debt Collector Status

The ordinary consumer may welcome the incurrence of debt in exchange for access to additional capital for opportunities, such as the purchase of a vehicle or the payment of tuition for a college education, that may otherwise be unattainable. However, the difficulties and frustrations in the event of default on the repayment of debt may incentivize the responsible consumer to ensure that his debts never exceed his personal budget. After all, the consumer can only imagine the potential extent to which debt collectors may utilize their resources to recover the unpaid balance owed to the creditors. Yet the creditors may deploy debt collectors in the first place due to concerns regarding a consumer’s efforts to delay the process of the collection of at least a portion, if not all, of the debt.

Such concerns from both sides of the debt-incurring transaction may experience the impact resulting from the Supreme Court’s decision regarding the distinction between different types of debt collectors as defined and regulated in the Fair Debt Collection Practices Act (“FDCPA”).1  The circumstances surrounding the case pertained to a default on the mortgage of a Colorado home by Mr. Obduskey (“the consumer”).2  At the time of the default, Colorado was one of many jurisdictions that permitted creditors to pursue nonjudicial foreclosures, which, unlike judicial foreclosures, generally comprise of little to no court involvement with respect to the process of consumer notification and property sale.3  In response to the default, Wells Fargo Bank (“the creditor”) employed McCarthy & Holthus LLP (“the debt collector”) to initiate nonjudicial foreclosure proceedings.4  Pursuant to the Colorado framework for nonjudicial foreclosures, the debt collector notified the consumer via letter of the impending foreclosure.5  The consumer subsequently sent a letter to the debt collector that disputed the debt as described in the debt collector’s letter.6  The debt collector thereafter proceeded with the next steps of the nonjudicial foreclosure process “by filing a notice of election and demand with the county public trustee.”7  Reasoning that the debt collector’s conduct following his letter of dispute violated § 1692g(b) of the FDCPA, the consumer pursued a claim against the debt collector that eventually attracted the attention of the Supreme Court.8

Section 1692g(b) of the FDCPA constitutes one of many restrictions imposed upon the conduct of debt collectors, as defined under § 1692a(6) of the FDCPA,9)  towards consumers.10  In accordance with § 1692g(b) of the FDCPA, the debt collector “shall cease collection of the debt . . . until the debt collector obtains verification of the debt . . . and a copy of such verification . . . is mailed to the consumer by the debt collector” provided that “the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) that the debt, or any portion thereof, is disputed . . . .”11  In other words, a debt collector, after having notified a consumer of an impending nonjudicial foreclosure and after having timely received a dispute letter from the consumer, must first address the dispute letter—by sending to the consumer a document that confirms the debt—before communicating with the county public trustee.

The Colorado homeowner may have relied upon § 1692g(b), because the situation surrounding the default on the mortgage of the house clearly fell within the purview of the FDCPA. The FDCPA remains concerned with debt that refers to “any obligation . . . of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes . . . .”12  Because he borrowed funds from a creditor—accompanied by an obligation to repay the borrowed amount through a mortgage—to purchase a house for at least one of the relevant purposes, the Colorado homeowner incurred debt within the meaning set forth by the FDCPA.13  Moreover, the FDCPA encompasses only those consumers who are “natural person[s] obligated . . . to pay any debt.”14  Because he needed to pay off the debt associated with the purchase of the house through his mortgage, the Colorado homeowner qualified as a consumer within the meaning set forth by the FDCPA.15

The more difficult question, which the Supreme Court primarily addressed, pertained to whether the law firm employed by the creditor qualified as a debt collector as defined by the FDCPA so as to be obligated to comply with the multitude of regulations, such as § 1692g(b), which would confine the extent of its conduct. The FDCPA first refers to a debt collector as “any person who uses any instrumentality of interstate commerce or the mails 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 due or asserted to be owed or due another.”16  The definition concludes by noting that, “[f]or the purpose of section 1692f(6) of this title,” a debt collector “also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principle purpose of which is the enforcement of security interests.”17  So, does this one section of the FDCPA that defines who qualifies for debt collector status refer to only one class of debt collectors? And, if so, does that not mean that the law firm failed to comply with § 1692g(b) of the FDCPA as argued by the consumer? 

The Supreme Court’s approach to addressing the issue primarily involved traditional methods of statutory construction. The Court first analyzed the text of the statute itself.18  The Court first concluded that a reading of the first and last sentences of § 1692a(6) revealed two definitions concerning debt collectors; the Court’s opinion referred to the beginning sentence as the “primary” definition and the concluding sentence as the “limited-purpose” definition.19  Because the law firm merely engaged in the enforcement of a security interest (i.e., the mortgage, which constitutes “a security interest in the property designed to protect the creditor’s investment”),20 the Court noted that the entity, at the very least, qualified as a debt collector within the meaning of the limited-purpose definition.21  In other words, the law firm was, at the very least, subject to § 1692f(6), a restriction on the conduct of debt collectors in the context of the pursuit of “nonjudicial action.”22

The fact that the law firm was a debt collector under the limited-purpose definition did not end the inquiry.  The Court proceeded by finding that the language of § 1692a(6) suppressed the notion that debt collectors who fell within the limited-purpose definition by means of the mere “enforcement of security interests” automatically qualified as debt collectors within the primary definition.23  After all, the statute contains not one definition, but two definitions for debt collectors.24  If, the Court argued, the limited-purpose definition served merely as a passive subset of the primary definition, then the express inclusion of the limited-purpose definition—along with the “special” mention of § 1692f(6)—would serve no purpose, which would consequently undermine the Court’s presumption that legislatures draft laws with no redundant sentences or provisions.25  Moreover, the exclusive focus of the limited-purpose definition on debt collectors concerned with security interests and the inclusion of the word “also” with respect to debt collectors subject to the restrictions of § 1692f(6) both underscore the features of the limited-purpose definition, which are absent from the primary definition, that sensibly justify the separation of the former from the latter.26  Accordingly, the Supreme Court concluded that the distinction between the limited-purpose definition and the primary definition applied furthermore to the provisions of the FDCPA that regulated the conduct of debt collectors.27  In other words, only the restrictions of § 1692f(6) applied to limited-purpose definition debt collectors, whereas the other restrictions—including § 1692g(b)—applied only to primary definition debt collectors.28

Although it considered the language contained within the FDCPA to be the “most decisive” support for its reasoning,29 the Supreme Court also briefly examined the congressional intent and legislative history behind the enactment of § 1692a(6) of the FDCPA. The Court’s opinion indicated that Congress likely included the primary and limited-purpose definitions to mitigate any potential conflict between the FDCPA and local laws concerning nonjudicial foreclosure procedures.30  The legislative history of the statute, moreover, revealed that the inclusion of the primary and limited-purpose definitions reflected a compromise over whether to completely subject debt collectors who merely enforce security interests to, or exclude them from, the “full coverage of the Act.”31

Based on the foregoing analysis, the Supreme Court unanimously held that the debt collector did not violate § 1692g(b) of the FDCPA, because the firm qualified only as a limited-purpose definition debt collector subject only to the restrictions of § 1692f(6) of the FDCPA.32  Notwithstanding its decision in favor of the debt collector, the Court concluded its opinion by leaving open the possibility that limited-purpose definition debt collectors may also qualify as primary definition debt collectors. By underscoring the fact that the law firm “engaged in no more than the ‘enforcement of security interests,’”33 the Court seemed to suggest that the law firm could have also been classified as a primary definition debt collector—and, hence, subject to § 1692g(b) and the other relevant restrictions imposed by the FDCPA—had its conduct stepped beyond the boundaries of the mere enforcement of a security interest.

Despite such a qualification to the otherwise narrow treatment of limited-purpose definition debt collectors under the FDCPA, creditors and consumers will undoubtedly experience the impact of the Supreme Court’s decision. Prior to the Supreme Court’s adjudication of the case, there existed a circuit split regarding the issue of whether limited-purpose definition debt collectors automatically qualified as primary definition debt collectors.34  With the circuit split now having been resolved, a greater degree of flexibility has been granted to debt collectors who merely enforce security interests on behalf of creditors in jurisdictions that permit nonjudicial foreclosures. Conversely, what may have been a mechanism to delay the debt collection process—namely § 1692g(b)—will no longer apply to every debt collector in the context of nonjudicial foreclosures.35  However, as noted by the Court’s single concurring opinion, a textual modification of the statute by Congress may adjust the shift in the balance regarding the relationship between creditors and consumers that can potentially render this case easily reversible.36  Whether Congress will respond accordingly following the Supreme Court’s decision remains unclear.

  1. Obduskey v. McCarthy & Holthus LLP, No. 17-1307 (U.S. Mar. 20, 2019). 

  2. Id. at 4. 

  3. Id. at 2-3. 

  4. Id. at 4. 

  5. Id. 

  6. Id. 

  7. Id. at 5. 

  8. Id. 

  9. 15 U.S.C. § 1692a(6) (2012 

  10. 15 U.S.C. § 1692g(b) (2012). 

  11. Id. 

  12. 15 U.S.C. § 1692a(5) (2012). 

  13. See Obduskey v. McCarthy & Holthus LLP, No. 17-1307, slip op. at 2 (U.S. Mar. 20, 2019). 

  14. 15 U.S.C. § 1692a(3) (2012). 

  15. See Obduskey, slip op. at 2. 

  16. 15 U.S.C. § 1692a(6) (2012). 

  17. Id. 

  18. Obduskey, slip op. at 7-9. 

  19. Id. at 6. 

  20. Id. at 2. 

  21. Id. at 7. 

  22. 15 U.S.C. § 1692f(6) (2012). 

  23. Obduskey, slip op. at 7-8. 

  24. Id. at 8. 

  25. Id. at 8-9. 

  26. Id

  27. Id. 

  28. Id. 

  29. Id. at 7. 

  30. Id. at 9. 

  31. Id. at 9-10. 

  32. Id. at 8-9. 

  33. Id. at 14.  

  34. Id. at 5. 

  35. John Baxter, Lenders Score Major High Court Victory in Foreclosure Case, Law360 (Mar. 21, 2019), 

  36. Obduskey v. McCarthy & Holthus LLP, No. 17-1307, slip op. at 1 (U.S. Mar. 20, 2019) (Sotomayor, J., concurring).