Howard Smith, Esq.
When you find yourself in times of trouble and are unable to make your car payment, the holder of the loan will hire a company to repossess your vehicle. A body of law exists at the federal level and in California to prevent unfair debt collection practices. At the federal level, the law is referred to as the Fair Debt Collections Practice Act (“FDCPA”). In California, the law is called the Rosenthal Act and is designed to track the federal provisions.
The protections only apply to debt collectors and activities that constitute debt collection practices under the acts. It has been disputed whether repossession companies – that do nothing more than seek the return of property – are debt collectors and engage in debt collection practices.
These two questions have now been answered. First, the U.S. Supreme Court in Obduskey v. McCarthy v. Holthus LLP (2019) 139 S. Ct. 1029 addressed the question of who was a debt collector under the acts. In Obduskey, the Supreme Court addressed the issue of whether a law firm was a debt collector under the acts. Id. at 1033-1034. While the Supreme Court did not specifically address the issue, the Court implied that repossession companies were debt collectors as part of its analysis in reaching its final conclusion – law firms were not debt collectors under the acts. Id. at 1038-1040.
Whether the Supreme Court in Obduskey found that a repossession company was a debt collector under the acts is now immaterial because on June 30, 2020, the Court of Appeals for the Ninth Circuit issued the decision in Barnes v. Routh Crabtree Olsen PC (9th Cir. 2020) 2020 U.S. App. LEXIS 20530 finding that the enforcement of a security interest by retaking or forcing a sale of the property, without regard to any additional debt that may be owed, does not constitute debt collection practices under the act. Id. at 13-17.
In Barnes, the Plaintiff filed suit after Fannie Mae attempted to foreclose on his house. The Plaintiff alleged Fannie Mae violated the Fair Debt Collection Act by pursuing a judicial foreclosure without lawful authority and neglecting to make required disclosures. Id. at 3-4. The District Court granted a Motion to Dismiss, which ruling the Defendants had not violated the FDCPA because a judicial foreclosure is not debt collection. Id. at 5.
In Barnes, the Court of Appeals affirmed the ruling of the District Court finding that if a party is simply enforcing a security interest by retaking or forcing a sale of the property, without regard to any additional debt that may be owed, the FDCPA would not apply. Id. at 13-14.
The ruling in Barnes precludes any claims for the Unfair Debt Collection Practices Acts against repossession companies because these companies do nothing more than enforce a security interest by retaking property. This is consistent with the purpose of the acts – to prevent unfair practices in the collection of debts, where repossession companies do not recover outstanding debts, but seek the return of property.
The attorneys at Berman, Berman, Berman, Schneider & Lowary LLP can address any questions you have regarding the above, and they are uniquely qualified to provide additional insight and guidance.