On Monday, the United States Supreme Court heard oral arguments in Obduskey v. McCarthy & Holthus LLP. As a brief recap, the case questions whether a law firm engaging in non-judicial foreclosure is considered a debt collector under the Fair Debt Collection Practices Act (FDCPA). The Consumer Financial Protection Bureau filed an amicus brief in this case back in November, siding with McCarthy & Holthus (McCarthy) on the issue.
The crux of the oral arguments seemed to rest on whether the FDCPA intended the exclusion of those enforcing a security interest to mean only those who do not engage with consumers. The justices asked counsel for both parties to discuss the difference between a law firm engaging in non-judicial foreclosure versus a repossessor. McCarthy’s counsel argued that there is no distinction, both are enforcing a security interest, whereas Obduskey’s attorney argued that sending a pre-foreclosure notice constitutes debt collection. Some of the justices seemed to side with Obduskey’s attorney. differentiating that repossessor only engages with the collateral “in the dark of night,” whereas a foreclosure attorney engages with the consumer by, for example, sending a pre-foreclosure notice.
In a rather unexpected turn, two of the right-leaning, pro-business justices -- Chief Justice John Roberts and Justice Brett Kavanaugh -- both seemed to side with Obduskey's counsel on this question. Since such a notice encourages payment, Chief Justice Roberts referred to it as “indirect collection.” Justice Kavanaugh, the newest addition to the Supreme Court’s bench, likewise indicated that the purpose of a foreclosure notice is to tell someone that they need to pay or they will lose their home.
The oral arguments also turned to statutory interpretation of the FDCPA text itself. The FDCPA’s definition of debt collector explicitly includes those enforcing a security interest in the definition when it applies to one section of the statute, which indicates they are exluded from the remainder of the definition.
This issue also brought a split among the justices. Justice Samuel Alito sided with McCarthy, finding that the inclusion and exclusion in the text of the statute itself indicates that Congress intended there to be a divide. Justice Elena Kagan seemed to lean toward the interpretation that the law firm can be either a debt collector or an entity enforcing a security interest, but not both. Justice Sonya Sotomayor believed an entity can be both and that the real issue here wasn’t the definition but rather the engagement in unfair practices.
It seems the justices are split on the issue, which makes it difficult to predict how they will rule so we have to wait until the decision is published to find out the answer.