FDCPA Litigation Alert: Local Attorney Suing Regarding Collection of Association Assessments
A local consumer law attorney is suing property managers, arguing that property management companies and/or managers who send statements of account to homeowners with past due balances may be violating the FDCPA to the extent that such statements do not contain FDCPA legal notices.
This article examines two legal issues. First, are association assessments legally considered debts subject to the federal law known as the Fair Debt Collection Practices Act (the FDCPA)? Second, is an association managers action of sending monthly statements to debtors subject to the FDCPA?
Are assessments considered to be regulated debts?
There is currently a split of legal authority concerning whether assessments are debts under the FDCPA. The FDCPA defines a debt as any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes. Under one line of cases, certain federal circuits have held that community association assessments are not debts within the meaning of the FDCPA because they do not arise from a transaction that is an offer or extension of credit. However, other federal circuits have held that association assessments are debts and that an offer or extension of credit is not required. The U.S. District Court for the Southern District of California has held that the mere collection of assessments constitutes a transaction within the meaning of the FDCPA and that no offer or extension of credit is necessary.
The current trend of recent cases appears to suggest that association assessments may constitute debts subject to the mandates of the FDCPA. However, this issue has not yet been brought before the federal court in Minnesotas judicial circuit. Accordingly, a collector of association assessments in Minnesota may still argue that association assessments are not subject to the FDCPA.
Despite the foregoing, we are currently recommending that anyone collecting association assessments in this state take a conservative approach and provide any and all applicable notices. Although beyond the scope of this article, the required FDCPA compliance notices are not lengthy and your attorney should be able to advise you as to what notices are sufficient to comply with the act.
The FDCPA contains rather significant penalty provisions for civil violations. The FDCPA provides generally for actual damages, penalties of $1,000.00 per violation, costs, disbursements and attorneys fees. As a result of these generous remedies, many consumer law attorneys are pursuing FDCPA claims on a contingency fee basis at little costs to their clients. The cost of defending such actions can be significant.
Do Monthly Statements From Managers Require FDCPA Legal Notices?
The requirements of the FDCPA apply to debt collectors. Under the FDCPA, the term debt collector is broadly defined. The FDCPA provides, in part, that debt collector means any person who uses any instrumentality of interstate commerce or the mails 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. Since property managers regularly collect debts on behalf of their clients, they may fall within the definition of debt collectors. Given the above definition, there is at least a good faith argument that property managers are subject to the FDCPA. Property managers do regularly collect rental payments, association fee assessments and other amounts owing from debtors on behalf of property owners and associations. Sending monthly statements of account for past due balances, without the required legal notices may violate the FDCPA.
The foregoing analysis is subject to attack under at least three defensive theories. First, as discussed above, it has not been conclusively determined that association assessments are debts subject to the FDCPA. It can still be argued that the FDCPA does not apply to association assessments. Second, the determination as to whether or not property managers are debt collectors is subject to challenge. Third, the practice of sending monthly statements to owners may not be considered to be debt collection activity.
The Federal Trade Commission (the FTC) is the administrative federal government agency that issues opinions regarding the FDCPA. The FTC has issued a staff opinion concerning the applicability of the FDCPA to property managers. According to the FTC staff opinion, a property manager is generally not a debt collector unless certain conditions exist. To be classified as a debt collector, a property manager must be (1) collecting a delinquent obligation; and (2) use any name other than his own to indicate that a third person is collecting or attempting to collect the debt. We recommend caution in relying on FTC staff opinions since they are not binding in a court of law.
Property managers can argue that sending monthly statements is not a violation of the FDCPA. In its definition of debt collector, the FDCPA excludes persons collecting any debt owed or due to be owed to the extent such activity concerns a debt which was not in default at the time it was obtained by such person. Accordingly, merely sending monthly statements on debts that are not in default does not violate the FDCPA. Although we recommend caution with regard to debts that are past due and upon which statements are sent, a manager may still argue that the statements are merely being sent for informational purposes and that the debts were current when they were initially turned over to the property manager. However, it is currently unclear whether or not the mere sending of monthly statements rises to the level of debt collection under the FDCPA.
The FDCPA requires that certain legal notices be provided to a debtor including a debt validation notice and mini miranda warning notice. Copies of these legal notices are available from Hellmuth & Johnson, P.A.
The staff opinion referenced herein was issued by the FTC on November 6, 1995 to the Institute of Real Estate Management and a copy of the opinion is available from Hellmuth & Johnson, P.A.
