Have You Heard About The Non-Judicial Foreclosure Debt Collection Clarification Act?

Congress Looks to Judicial Overrides to Strengthen Consumer Protections

The under-utilized tool would allow Congress to reverse SCOTUS rulings that insulate lenders and corporations from regulation.

APR 27, 2021 | REPUBLISHED BY LIT: APR 28, 2021

In a unanimous decision last Thursday, the U.S. Supreme Court issued a ruling that would limit the ability of the Federal Trade Commission to seek monetary relief for customers who have been defrauded by corporate lenders. Under the new ruling, the FTC would only be allowed to pursue restitution in the form of injunctions, not cash payments, for customers who fell victim to deceptive practices like short-term or payday loans.

“An uncertain impending Supreme Court decision on the FTC’s 13(b) authorities has given scammers new opportunities to take advantage of people, including those who are isolated at home due to the pandemic,” said Energy and Commerce Committee Chair Frank Pallone Jr. and Consumer Protection and Commerce Subcommittee Chair Jan Schakowsky in a joint statement two days earlier. Lawmakers announced that they planned to amend the FTC’s founding legislation, which would preserve its ability to seek financial redress under section 13(b), regardless of what the Court decided.

In a unanimous decision last Thursday, the U.S. Supreme Court issued a ruling that would limit the ability of the Federal Trade Commission to seek monetary relief for customers who have been defrauded by corporate lenders. Under the new ruling, the FTC would only be allowed to pursue restitution in the form of injunctions, not cash payments, for customers who fell victim to deceptive practices like short-term or payday loans.

“An uncertain impending Supreme Court decision on the FTC’s 13(b) authorities has given scammers new opportunities to take advantage of people, including those who are isolated at home due to the pandemic,” said Energy and Commerce Committee Chair Frank Pallone Jr. and Consumer Protection and Commerce Subcommittee Chair Jan Schakowsky in a joint statement two days earlier.

Lawmakers announced that they planned to amend the FTC’s founding legislation, which would preserve its ability to seek financial redress under section 13(b), regardless of what the Court decided.

By clarifying its intent in the FTC statute through the proposed amendment, called the Consumer Protection and Recovery Act, Congress would effectively override the Supreme Court’s more limited interpretation.

With a simple tweak to the legislative text—which can pass on an individual basis or as part of an omnibus package—a so-called judicial override can address or eliminate whatever ambiguity the Supreme Court found within the law, thereby nullifying the Court’s decision.

This congressional option has the potential to counteract a conservative-leaning court and toss out dozens of harmful rulings.

And the proposed FTC legislative fix is not the only judicial override Democratic lawmakers are pursuing. Last week, the House Financial Services Committee, chaired by Rep. Maxine Waters, marked up an omnibus package known as the “Comprehensive Debt Collection Improvement Act.”

The legislation beefs up a number of consumer protections, ranging from limits on how debt collectors can harass consumers electronically (sponsored by Rep. Ayanna Pressley, D-Mass.) to new restrictions on entities that collect medical debt (sponsored by Rep. Rashida Talib, D-Mich.).

Another seemingly obscure bill included in the package, introduced by freshman Rep. Jake Auchincloss (D-Mass.), seeks to challenge a 2019 U.S. Supreme Court case that limited the rights of consumers in non-judicial foreclosure states.

(Non-judicial foreclosure means lenders do not have to go to court to repossess your home. According to the legal blog Nolo, 30 states and the District of Columbia use non-judicial foreclosure, including Auchincloss’s home state of Massachusetts.)

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The bill—the Non-Judicial Foreclosure Debt Collection Clarification Act—would classify any business involved in foreclosure in a non-judicial foreclosure state as a debt collector, thereby subjecting it to the rules and protections of the Fair Debt Collection Practices Act (FDCPA).

It’s Auchincloss’s first bill in Congress.

The bill would override a decision the U.S. Supreme Court reached in 2019, involving a foreclosure dispute between a man named Dennis Obduskey and a law firm that declared it was commencing foreclosure on his Colorado home.

Obduskey challenged the proceedings under the FDCPA, alleging the law firm failed to verify his debt, as required of debt collectors under federal law.

Jake Auchincloss is introducing his first bill as a member of Congress
The focus?

Debt collection protections for people going through foreclosure.

APR 13, 2021 | REPUBLISHED BY LIT: APR 28, 2021

Exactly 100 days into his career in Congress, freshman Rep. Jake Auchincloss is slated to file his first bill Tuesday evening.

According to his office, the Massachusetts congressman is introducing the Non-Judicial Foreclosure Debt Collection Clarification Act, which would curtail the ability of third-party debt collectors to contact individuals going through foreclosure in states, like Massachusetts, where foreclosures are not required to go through the judicial process.

Auchincloss says it would ensure that homeowners going through the foreclosure process “are treated with dignity.”

“Debt collectors should not have the right to endlessly harass borrowers,” the Newton Democrat said in a statement. “By creating a uniform foreclosure process, Congress will be protecting homeowners and eliminating third-party harassment.”

His office says the legislation — which has been endorsed by consumer rights groups like the National Consumer Law Center, Americans for Financial Reform, and the Consumer Federation of America — will also directly benefit Massachusetts residents. Unlike the 21 states that require lenders to file a lawsuit in court to foreclose on a resident’s home, Massachusetts is considered a “non-judicial state,” meaning homeowners can lose their home to foreclosure without ever having an opportunity to go to court and contest the foreclosure, according to Greater Boston Legal Services.

While the bill wouldn’t change that process, it would expand protections in the Fair Debt Collection Practices Act to apply to non-judicial foreclosure actions, so that creditors in those proceedings would have to follow rules against contacting individuals at work or between the hours of 9 p.m. and 8 a.m., among other restrictions. Rachel Gittleman, the outreach manager for the Consumer Federation of America’s Financial Services, says the bill would “close an unintended gap” in the consumer protection law.

While the 33-year-old former Newton city councilor does not yet have any cosponsors, a spokesman for Auchincloss said he plans to use his position on the House Committee on Financial Services to guide the bill through the legislative process in a “timely fashion.” In the wake of the pandemic, Auchincloss said consumer protections will be central to the economic recovery.

The legislation also picked up on the work of Auchincloss’s predecessor representing the state’s 4th District, former Rep. Joe Kennedy III, who often focused on improving legal protections for those going through eviction or foreclosure.

Auchincloss won the crowded Democratic primary race for Kennedy’s seat last summer by roughly 2,000 votes.