Reed Smith Client Alerts

On March 20, 2019, the United States Supreme Court issued a ruling resolving a circuit split concerning the definition of a debt collector under the FDCPA, effectively holding that businesses that are only engaged in enforcing mortgage security interests in non-judicial foreclosure states are not considered debt collectors under the federal statute.  

Authors: Abraham J. Colman Raffi Kassabian Jason M. Ingber

House sitting on a stack of money

In Obduskey v. McCarthy & Holthus LLP, No. 17-1307, 2019 WL 1264579, (U.S. Mar. 20, 2019), the law firm McCarthy & Holthus LLP, acting as an agent for Wells Fargo Bank, N.A., initiated a non-judicial foreclosure on a Colorado residential property owned by borrower and petitioner Dennis Obduskey. The law firm sent the borrower correspondence related to the foreclosure, which included a default notice with the debt amount. Borrower Obduskey attempted to invoke the FDCPA §1692g(b), which provides that if a consumer disputes the debt amount, a “debt collector” must cease collection” until it “obtains verification of the debt” and mails a copy to the debtor. He subsequently filed a lawsuit in federal court against McCarthy & Holthus LLP claiming a violation of the FDCPA for failure to comply with the verification procedure. The District Court dismissed the case on the basis that the Defendant’s law firm was not a debt collector under the FDCPA, and the Tenth Circuit affirmed on appeal.

The United States Supreme Court unanimously upheld the Tenth Circuit’s ruling, holding that businesses exclusively engaged in enforcing a home mortgage security interest are not debt collectors under the section 1692a(6) of the FDCPA, which states that the “…term [debt collector] also includes any person…in any business the principal purpose of which is enforcement of security interests.”