The U.S. Supreme Court is currently reviewing Obduskey v. McCarthy & Holthus LLP, a case that asks whether enforcing a security interest on a mortgage debt by initiating a nonjudicial foreclosure through state law-required procedures is considered debt collection under the Fair Debt Collection Practices Act (FDCPA). On Wednesday, November 14, 2018, the Bureau of Consumer Financial Protection (BCFP or Bureau) filed an amicus brief in this case stating the law firm’s actions fall outside of the FDCPA.


Case Background

As a brief factual background, the petitioner had a mortgage with Wells Fargo. After petitioner defaulted on the mortgage, Wells Fargo placed the account with McCarthy  & Holthus LLP (McCarthy), a law firm, to proceed with a nonjudicial foreclosure. McCarthy sent a couple of letters to petitioner, at least one of which stated that McCarthy “may be considered a debt collector attempting to collect a debt” and contained a notice of petitioner’s 1692g validation rights. At one point, petitioner disputed the debt requesting validation, notifying McCarthy that he is represented by an attorney, and requesting a cease in communications. McCarthy verified the debt and initiated the nonjudicial foreclosure process by filing a notice with a public trustee as required by Colorado law.

Petitioner sued McCarthy alleging it violated the FDCPA by initiating the nonjudicial foreclosure. The district court ruled in favor of McCarthy, finding that initiating a nonjudicial foreclosure is not considered “debt collection” per the FDCPA. The Tenth Circuit affirmed the district court’s ruling. The U.S. Supreme Court granted the petition for writ of certiorari on this case.

BCFP’s Amicus Brief

In its amicus brief, the Bureau extensively discussed the process of enforcing a security interest. In the case of mortgage foreclosures, the security interest usually rests in the property at issue. To enforce this security interest, creditors can proceed with a judicial foreclosure or, if applicable state law allows it, a nonjudicial foreclosure.

Even though they are less formal than their judicial counterpart, nonjudicial foreclosure procedures contain protections for consumers. In Colorado, the state at issue here, even the nonjudicial foreclosure process requires some level of court intervention. The Bureau states:

Congress reasonably determined that enforcing security interests in accordance with applicable law does not present the same risks as demanding payment from debtors directly. The enforcement of security interests has long been subject to an extensive body of state law that provides substantial safeguards.

The Bureau also turned to the language of the FDCPA. When it comes to enforcing security interests, the FDCPA only applies to actions referenced in Section 1692f(6). Section 1692f(6) reads that it is an unfair or unconscionable means to collect a debt if the debt collector takes a nonjudicial action “where there is no right to possession of the property claimed as collateral through an enforceable security interest.” Since the FDCPA creates this restriction, the Bureau stated that “enforcing a security interest, by itself, is not debt collection” unless it meets the requirements of Section 1692f(6).

Based on the above, the Bureau concludes:

McCarthy did not engage in debt collection by initiating a nonjudicial-foreclosure proceeding under Colorado law. Actions that are legally required to enforce a security interest are not debt collection under the FDCPA -- except for purposes of 15 U.S.C. 1692f(6), which is not at issue here. Nonjudicial foreclosure is ‘the enforcement of [a] security interest’ and filing a notice with a public trustee is undisputedly a necessary step in that process in Colorado. Deeming such activities debt collection would bring the FDCPA into conflict with state law and effectively preclude compliance with state foreclosure procedures. No sound basis exists to assume Congress intended that result.

insideARM Perspective

The Bureau’s amicus brief is consistent with what appears to be Acting Director Mick Mulvaney’s mission since taking over: keeping its positions within the limits set by Congress in the statutes. The first insight into the Bureau’s direction was when Acting Director Mulvaney changed the name of the Bureau to what the Dodd-Frank Wall Street Reform and Consumer Protection Act called for. In this case, the Bureau takes a similar, statutory-based position.

This brief also suggests that the Bureau is aware of and trying to work in sync with state consumer protection laws. Once the Bureau’s third party debt collection rules come out (currently slated for March 2019, but the release date has been pushed back several times in the past), it will be interesting to see how the Bureau’s rules interact with state laws.

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