On March 20, 2019, the U.S. Supreme Court issued an important decision for the default servicing industry. In Obduskey v. McCarthy & Holthus LLP, the Court held that a business engaged only in nonjudicial foreclosure proceedings did not qualify as a “debt collector” under nearly every provision of the federal Fair Debt Collections Practices Act (FDCPA).
The FDCPA broadly regulates “debt collectors” as to consumers and their debts, requiring debt collectors make certain disclosures to consumers on specific timeframes and limiting both the scope and nature of their communications with consumers. However, the Court found that the FDCPA’s definition of “debt collector” generally does not include those who only enforce “security interests.” For this reason, law firms that engage in purely nonjudicial foreclosure proceedings are not subject to any provision of the FDCPA that does not specifically state so. The Court found that only one provision of the FDCPA (15 U.S.C. 1692f(6)) applies to such law firms.
Notably, the Court did not decide whether law firms engaging in judicial foreclosure proceedings in which no personal judgment is sought fall into the same category under the FDCPA as nonjudicial foreclosure firms. As a result, it should not be assumed that yesterday’s decision has an effect on whether judicial foreclosure firms qualify as “debt collectors” under the FDCPA.