Protections Against Unfair Debt Collection Practices in Foreclosure

The Fair Debt Collection Practices Act is a law not often discussed, but one that has enormous impact on the lives of most Americans. Enacted in 1977, the FDCPA, as it is known in short, bans debt collectors from using unfair or deceptive practices to collect debts from people. This means that the FDCPA bans debt collectors from doing things like calling in the middle of the night, harassing or threatening people, and misleading people about what they owe. The FDCPA also requires debt collectors to provide people with specific notices and information, like validation of alleged debts, to prevent unscrupulous collectors from demanding money that people don’t rightfully owe. Since one in three Americans has an account in collections at any given moment, and nearly half of people of color have an account in collections, these protections are designed to allow all of us to live our financial lives in relative peace.

In Obduskey v. McCarthy & Holthus, a law firm asked the Supreme Court for a big exception to the protections in the FDCPA. McCarthy & Holthus is a law firm that represents mortgage lenders and initiates foreclosures against homeowners who are behind on their mortgages. In this case, the law firm attempted a nonjudicial foreclosure, i.e. a foreclosure that takes place outside of any court process, without following the requirements of the FDCPA. The law firm asked the Supreme Court to hold that foreclosing on a person’s home is not debt collection, and therefore that homeowners facing nonjudicial foreclosure are not protected by most provisions of the FDCPA.

In addition to arguing that the FDCPA protects homeowners facing all kinds of foreclosure, LDF’s brief highlighted the particular risks faced by African-American homeowners. Our brief explained that, due to more than a century of discriminatory housing policies, African Americans are more vulnerable to debt collection abuses by law firms like McCarthy & Holthus that specialize in foreclosing on homeowners. Therefore, the FDCPA’s protections in the foreclosure context are a matter not just of consumer justice, but of racial justice.

Unfortunately, the Supreme Court held, in an 8-0 ruling, that the protections in the FDCPA at issue in this case did not apply to McCarthy & Holthus. Importantly, the Court did not go as far as the law firm asked. The Court did not hold that the FDCPA is wholly inapplicable to nonjudicial foreclosures. Rather, as Justice Sotomayor points out in her concurrence, the Court only held that when a party is doing nothing but following the state process for a nonjudicial foreclosure, some of the FDCPA’s protections do not apply. If the foreclosing party, however, does anything at all outside of what is strictly required by the state foreclosure process, that conduct may be covered by the FDCPA, and all the Act’s protections may apply.