Daily Development for Wednesday, March 15, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

FAIR DEBT COLLECTION PRACTICES ACT; DEFINITION OF "DEBTO COLLECTOR;" MANAGEMENT COMPANIES: Property Management company is not subject to federal debt collection Alexander v. Omega Management, Inc., 67 F. Supp.2d 1052 (D. Minn. 1999).

The management company was retained by a townhouse community owners' association to manage the community's business affairs and look after its maintenance needs. Every month, the company sent statements to all members of the Association to collect that month's portion of = the annual assessment.

Plaintiff received a statement in May 1998 with a balance which = included charges for late fees and collection costs. Plaintiff brought a = lawsuit against the Management Company over these charges, claiming that it violated the FDCPA by trying to collect a debt without providing the proper disclosures required of a "debt collector" subject to the FDCPA. The Management Company argued that it was not a "debt collector" within the meaning of the FDCPA, because debt collection only encompassed about 3% of the activities it performed for the community.

The District Court agreed and granted summary judgment to the Company. In determining whether someone is a "debt collector," under the FDCPA, the court noted courts have determined that the amount of debt collecting performed by the individual is an important factor. = Here the evidence demonstrated that a majority of the Management Company's time was spent maintaining and grooming the property, and debt collection was a minor function. Thus, the Management Company did not constitute a debt collector under the FDCPA, and was not subject to its requirements.

Alternatively, the court also found that the Management Company fell under an exception to the FDCPA definition of a "debt collector." In defining a "debt collector," the FDCPA creates an exception for anyone who is collecting a debt that was not in default at the time the = individual first obtained the debt. Since the Management Company was responsible for collecting assessments whether or not they were delinquent, it fell into this exception. Thus, the court ruled for the Management Company's because the FDCPA did not apply to it.

Comment 1: Although the case obviously is welcome news for many readers, the editor counsels that the reasoning may not be all that = tight.

The language of the definition section states that a covered "debt collector" includes:

"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."

First, the strict language of the statute would apply to any person who uses the mail to collect a debt even if that person is not collecting = debts "regularly."

Second, even if we accept that the language that covered persons must collect debts "regularly," this does not necessarily mean that debt collection be their primary activity. Courts reviewing whether lawyers are covered by the Act have not required that debt collection be the primary activity, but only that it be a "regular" activity.

Garrett v Derbes, 110 F3d 317 (5th Cir., 1997) stated that Congress = must have intended "principal purpose" prong of 15 USCS =A7 1692a(6) to = differ from "regularly" prong, so that person may regularly render debt collection services, even if these services are not principal purpose = of his business; if volume of person's debt collection services is great = enough, it is irrelevant that these services only amount to small fraction of his = total business activity, as person still renders them regularly.

Clearly the collection of debts is a "regular" activity of the company = in the instant case.

Comment 2: The editor admits puzzlement at the "alternative holding" of the court to the effect that the company was not a debt collector = because the assessments in the typical case were not overdue when it billed for them. The Act defines a debt is simply "any obligation to pay arising = out of a consumer transaction.." For discussion of what constitutes a = "debt" under the Act, including citations to cases finding that association assessments are "debts," see 159 ALR Fed 121. Consequently, one would assume that the activities of the company in sending bills and collecting assessments amounted to "debt collection."

A reading of the statute that a party is not a "debt collector" unless = it regularly collects debts that are overdue is not consistent with the statutory language. It is true that the provisions of the Act will = not apply to the activities of a debt collector to collect debts that are not = yet overdue. But this does not mean that the limitation applies in determining whether in fact one is a "debt collector" to begin with.

In this case, note, the debt in question was overdue, so it is very = difficult for the editor to see what the court was getting at here.

Comment 3: In short, just on a brief reading of the statute and some annotations, the editor believes the case to be wrongly decided on the definition of "debt collector," but likes the outcome, so he welcomes dissenting views of responsible parties.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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