Supreme Court: Non-Judicial Foreclosure Firms Not Debt Collectors for Most FDCPA Purposes

On March 20, 2019, the U.S. Supreme Court unanimously held that an entity that is in the business of conducting non-judicial foreclosures is not a Debt Collector under the Fair Debt Collection Practices Act (FDCPA), except for purposes of a narrow provision concerning the enforcement of security interests.  Making pre-foreclosure communications that are required by state law also does not turn an entity into a Debt Collector.

The Court reached its conclusion through a careful reading of the FDCPA’s text.  The FDCPA imposes a number of restrictions on Debt Collectors, which are primarily defined as “any person . . . in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts.”  Based on that definition alone, the Court would have included entities that conduct foreclosures as Debt Collectors, because foreclosure would at least be indirect collection of a debt.  But there is a further provision, which defines Debt Collector to “also include[] any person . . . in any business the principal purpose of which is the enforcement of security interests” for the limited purpose of Section 1692f(6), which prohibits certain practices in connection with enforcing security interests.  Reading those two provisions together, the Court concluded that because the statute provides that entities whose principal purpose is the enforcement of security interests through non-judicial foreclosure are “also” Debt Collectors for purposes of Section 1692f(6), it follows that those entities are not otherwise included within the definition of Debt Collector.

While the Court explicitly limited its decision to non-judicial foreclosure, the logic of the opinion tends to support the proposition that entities similarly do not become Debt Collectors by reason of conducting judicial foreclosures.  (A resolution of that question would also need to take into account the FDCPA’s venue provision, which discusses the venue for “an action to enforce an interest in real property securing the consumer’s obligation” brought by “[a]ny debt collector.”)  Importantly, however, entities that are Debt Collectors under the FDCPA because they engage in debt collection activities other than non-judicial foreclosures, including pre-foreclosure communications that are not required by state law, may need to comply with FDCPA requirements in connection with non-judicial foreclosures under the logic of the Court’s opinion, because their status as Debt Collectors brings them under the coverage of the FDCPA.