Brian Frontino, left, and Kingsley Nwamah, right, with Stroock & Stroock & Lavan in Miami..

In the second quarter of 2019, consumer debt in the United States rose to a record high of $13.86 trillion according to the Federal Reserve Bank of New York. As consumer debt rises in the United States, rulings such as the U.S. Supreme Court's recent decision in Obduskey v. McCarthy & Holthus, are increasingly more important to the consumer debt industry.

In Obduskey v. McCarthy & Holthus, the Supreme Court ruled that businesses whose sole purpose is to enforce security interests that secure underlying debt, like automobile repossession agents and nonjudicial foreclosure firms (in states that maintain nonjudicial foreclosure procedures, unlike Florida), are not always "debt collectors" under the Fair Debt Collection Practices Act, 15 U.S.C. Section 1692 et seq. (FDCPA). The FDCPA imposes many requirements and restrictions on consumer debt collectors. After Obduskey, a security-enforcement firm is a debt collector only when it meets what the Supreme Court dubbed the "limited-purpose definition" of a debt collector. A limited-purpose debt collector is subject to far fewer FDCPA requirements and restrictions.

In Obduskey, Dennis Obduskey defaulted on his Colorado home loan. The lender hired the law firm McCarthy & Holthus (McCarthy) to carry out a nonjudicial foreclosure on the home, in accordance with Colorado state law. According to Obduskey, McCarthy did not comply with the FDCPA's requirement for a debt collector to cease collection activity until it "verified" his debt. Obduskey filed suit for this alleged FDCPA violation. The district court dismissed the lawsuit, however, finding that McCarthy was not a debt collector under the FDCPA because foreclosure proceedings are not debt collection under the statute. The U.S. Court of Appeals for the Tenth Circuit affirmed and Obduskey sought Supreme Court review, which the Supreme Court granted given the split of authority among the Third, Fourth and Sixth circuits, on the one hand, and Ninth and Tenth circuits, on the other hand, regarding the FDCPA's application to nonjudicial foreclosures. In a rare unanimous decision, the Supreme Court affirmed the Tenth Circuit.

In what the Supreme Court calls the "primary definition," the FDCPA defines a debt collector 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 owed or due or asserted to be owed or due another." The Supreme Court noted that this primary definition is then supplemented to include persons who only collect debt for a "limited purpose," as follows:  "such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests."

According to the Supreme Court, firms whose principal business purpose is limited to security-interest enforcement—such as automobile repossessors and nonjudicial foreclosure firms—are subject only to Section 808(6) of the FDCPA, which prohibits security-interest enforcers from taking or threatening nonjudicial action to dispossess or disable collateral securing a consumer debt if there is no present right to possess the collateral through an enforceable security interest, there is no present intent to take possession of the collateral, or the collateral is legally exempt from such action.

The vast majority of consumer debt in the United States are secured debts, i.e., home and automobile debt. Thus, the Supreme Court's ruling provides a foothold for agents repossessing consumer debt collateral to argue that they are not debt collectors under the FDCPA's primary definition of the term, and therefore are subject only to Section 808(6). Realizing that its ruling potentially exempted a large number of firms from the FDCPA's extensive consumer protections, the Supreme Court still cautioned that its opinion was not a license to engage in abusive debt collection practices under the guise of a nonjudicial foreclosure or similar lien-enforcement activities. Emphasizing this point, Justice Sonia Sotomayor in a concurring opinion implored Congress to clarify the FDCPA if the Supreme Court's interpretation was in any way mistaken.

In Florida, the Supreme Court's ruling in Obduskey is not likely to have a significant impact on consumer debt collection activities for several reasons. First, Florida does not have a nonjudicial foreclosure process. Second, Florida litigants bringing unfair collection practices claims often rely on the Florida Consumer Collection Practices Act, Florida Statutes Sections 559.55-559.785 (the FCCPA). The FCCPA, although analogous to the FDCPA, has a broader definition of debt collectors that includes any person attempting to collect any consumer debt. The FCCPA's definition of debt collector also does not provide a limited-purpose definition for security enforcers exempting them from the FCCPA's overall requirements and restrictions. Hence, it is unlikely that debt collection lawsuits in Florida will undergo a radical shift.

Throughout the rest of the country, however, Obduskey should reduce unfair debt-collection practices litigation risk appurtenant to enforcing consumer debt security interests, particularly in states that do not have their own debt collection statutes (like Florida does). However, Sotomayor's concurrence should serve as a cautionary note, as the Supreme Court seems to indicate that its ruling is not meant to countenance abusive practices and it may prompt Congress to take a second look at the "limited-purpose" definition. Meanwhile, persons who engage in security interest enforcement may wish to re-evaluate whether their practices may be expanded to meet the "primary definition" of debt collector now that there is certainty that the FDCPA's requirements and restrictions largely do not apply.

Brian Frontino is a partner and Kingsley Nwamah is an associate in the Miami office of Stroock & Stroock & Lavan.