FDCPA – Fair Debt – The Latest Case Actually Benefits Creditors

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For years the FDCPA (Fair Debt Collection Practices Act) has been used as a sword by debtors and debtors attorneys as a means of exacting revenge from those creditors attorneys who failed to strictly, and I mean STRICTLY, follow every small detail of the law. It reached the point that one court called it a “cottage industry” for debtor’s attorneys.

The FDCPA was so difficult to comply with, that even the Federal Circuit Court (the 7th Circuit) in one of its opinions literally included in the opinion the language that it recommended that debt collectors (including attorneys) use in order to comply with the FDCPA.  Unfortunately, even the letter that they wrote within the opinion failed to comply with one aspect of the FDCPA illustrating how difficult compliance can be.

With this background, on March 20, 2019 the Supreme Court of the United States issued its decision in the case of Obduskey v. McCarthy and Holthus LLP. The defendant was a law firm hired to carry out nonjudicial foreclosures in Colorado.

Facts.  In 2007, Obduskey bought a house with a $330,000 loan.  The loan was secured by the home.  Two years later Obduskey defaulted on the loan payments.  Wells Fargo Bank hired the defendant law firm (“Lawyers”) to carry out a nonjudicial foreclosure in 2014.  Lawyers sent a letter to Obduskey and he responded disputing the debt.  Lawyers started a nonjudicial foreclosure action.  Obduskey then filed suit claiming the Lawyers violated the FDCPA.

Issue. The question before the US Supreme Court was whether or not the Lawyers were debt collectors under the FDCPA (other than for just section 1692(f)(6)) issues.

Court Rulings. The trial court dismissed the claims of Obduskey “on the ground that the law firm was not a ‘debt collector’ within the meaning of the [FDCPA].”  The Court of Appeals for the Tenth Circuit affirmed.  The US Supreme Court also affirmed after looking at three different  issues finding the “most decisive, is the text of the Act itself.”  Reiterating the text of the FDCPA is likely not worth the words, but in essence the court found that the third sentence of section 1692a(6) would be superfluous if Obduskey’s position were adopted and that the law generally does not favor such constructions.  In the end, the US Supreme Court held that “the debt-collector-related prohibitions of the FDCPA (with the exception of the Sec. 1692f(6)) do not apply to those who, like McCarthey, are engaged in no more than security-interest enforcement.”

Lesson. An attorney who only performs nonjudicial collection activities for HOA’s and condominiums is not a debt collector, but if your state requires judicial foreclosures, then you MAY need to make sure that you comply with the FDCPA.  Be sure not to read more into this case than the Court actually stated or it could be a very expensive lesson.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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