Creditors’ Rights & Commercial Litigation
How to Avoid Violating Fair Debt Collection Practices Act When Trying to Collect Member Debts
When a member doesn’t pay her monthly assessment or other money she owes the association, it’s often up to the manager to try to collect what’s owed. But a manager can inadvertently run into trouble when trying to collect a member debt. A federal law- the Fair Debt Collection Practices Act (the Act)-govems what a manager may legally do. And it’s easy to violate the Act without realizing it. We’ll explain how the Act applies to managers, and what they must do to comply with it. Check with your attorney before implementing any of the suggestions given here, because many states have their own debt collection laws that managers must follow also.
Who Must Comply with Act?
The Act was passed to bar “debt collectors” from harassing debtors. It applies to anyone who regularly collects or attempts to collect debts owed to someone else, says California attorney Jon H. Epsten. lt doesn’t apply to a creditor that’s trying to collect its own debts-for example, an association that sends a member a demand for a past-due assessment. Does the Act apply to managing agents of community associations? There are conflicting opinions on this issue, says California attorney Sandra Gottlieb. She
knows of one case where the manager was found liable for failing to comply with the Act but has seen other cases turn out differently. Many times it depends on what a court thinks of the facts of the particular case. So the safest course for all managers to take is to comply with tbe Act, says Gottlieb.
What Collections Are Covered by Act?
The Act applies only to situations where the member is a person, not where it’s a corporation, partnership or trust, or other entity, says Epstcn. So if the association is seeking to collect an association debt from, say, a corporation that owns a unit in the community, it needn’t comply with the Act, he points out. Also, some federal courts have ruled that community association assessments aren’t “debts” at all. If your association is located in a part of the country covered by these federal court rulings, the Act doesn’t apply to efforts to collect a past-due assessment from a member. Check with your attorney to learn more about
the law in your locality.
Penalties for Violating Act
The penalties for violating the Act can be harsh. First, the member is entitled to what’s called ” actual damages. “This includes not only any financial loss the member can prove but also things like emotional distress and slander. In fact, to win a case under the Act, the member doesn’t have to prove financial damages at all. Second, the member can collect up to $1 ,000 in what’s called “additional damages.” If the debt collector is sued in a class action (which is a lawsuit brought by many people who claim to have been harmed by the same person in the same way), the debt collector could have to pay $1 ,000 to each person suing it, up to $500,000 or l percent of the debt collector’s net worth, whichever is less. Because many managers pursue hundreds of debts at a time, the possibility of being sued in a class action is quite real, warns California attorney Debora Zumwalt. Gottlieb knows of one association manager who was sued in a class action and had to pay $229,000. Finally, the member can collect her attorney’s fees and any costs.
PRACTICAL POINTER: One violation is all that’s needed to be potentially liable under the Act, says Epsten. The member doesn’t have to prove repeated violations or an ongoing course of inappropriate conduct.
How to Comply with Act
Here are I 0 dos and don’ts for complying with the Act:
- Disclose intentions to member in your first communication with her. In the debt collector’s first communication with the member, whether it’s by telephone or letter, he must say that he’s calling or writing to collect a debt and that any information he obtains will be used for that purpose. Then, in all subsequent communications, the debt collector must say that he’s calling or writing to collect a debt. Epsten suggests adding the following statement to all initial letters: “This is a communication from a debt collector attempting to collect a debt, and any information obtained will be used for that purpose.” And he suggests adding the following statement to all subsequent letters: “This is a communication from a debt collector.
- Don’t contact member at unusual time. A debt collector shouldn’t contact the member to talk about the debt, either before 8:00 AM or after 9:00 PM or at any other time he knows to be inconvenient for her, unless she has given written permission to do so.
- Don’t contact member at work. If a debt collector knows that the member’s employer prohibits her from accepting personal calls at work, he may not call her there. Sometimes the debt collector isn’t sure if the employer has such a policy. In that case, it’s better to err on the side of caution and not call the member at work. If the member provides a work number as a contact number for communicating about the debt, it’s okay to call her there, says Gottlieb.
- Deal with member’s attorney if she has one. If the member is represented by an attorney with regard to the debt- for example, if the member has declared bankruptcy-the debt collector must deal directly with the attorney. The debt collector is allowed to deal directly with a member who’s represented by an attorney only if her attorney fails to respond within a reasonable amount of time to his attempts to contact her, or if the attorney gives written permission to deal directly with the member.
- Don’t continue to contact member if she refuses to pay debt and says to stop calling and writing. If the member refuses to pay the debt and tells the debt collector that she wants him to cease communications with her, he must stop. At that point, he may contact the member only to tell her:
- That he’ll no longer be trying to collect the debt;
- That he’s considering other options and what those options are; or
- Specifically, what he’s going to do-for example, bring a lawsuit against her to collect the debt. say or imply that he has started a lawsuit if he hasn’t. Nor should he say anything else that’s misleading, warns Zumwalt. The Act forbids any false, deceptive, or misleading communications. And the test a court will use to decide whether a communication was misleading is to decide whether the communication would mislead the least sophisticated person, she says.
- Don’t do anything that would harass member. The Act specifically says that debt collectors may not do anything that would have the natural effect of harassing, oppressing, or abusing the member. Among the types of behavior to avoid, according to Epsten, are using obscene or abusive language, publishing a list of delinquent members in the community newsletter, threatening violence, making an excessive number of calls, or sending an excessive number of letters.
- Include validation notice in first written communication, or send one within five days of first oral communication. A validation notice must accompany the debt collector’s first written communication or be sent within five days of his first oral communication, says Gottlieb. A validation notice is a written document that states the amount of the debt, the name of the creditor, and the following three legally required statements:
- Unless the member disputes the debt within 30 days of receiving the validation notice, the debt collector will assume that the debt is valid.
- lf the member notifies the debt collector in writing within 30 days of receiving the validation notice that the debt isn’t valid, the debt collector will get verification of its validity and mail that verification to her. (This verification will usually be backup data from the association or its management company, says Gottlieb.)
- For validation notices involving a creditor that isn’t the original creditor, the debt collector must also state that he’ll provide the member with the name and address of the original creditor if the member requests it in writing within 30 days of receiving the validation notice. If the member requests either verification or the name of the original creditor, the debt collector must suspend all collection activity until he gives her that information.
- Don’t have conversations with anyone but debtor or debtor’s attorney. With the exception of the association’s board members and attorney, a debt collector isn’t allowed to talk about the debt with anyone but the debtor or the debtor’s attorney. Debt collectors are often contacted by people other than the member to talk about the debt. Most of the time, these calls are perfectly legitimate, such as when an adult child of an elderly member calls. But unless the member has said it’s okay, a debt collector may not talk about the member’s debt with anyone other than the member or her attorney. If the debt collector gets a call from someone else, he should politely tell the caller that he’s not at liberty to discuss the matter, but if the member wants to give him permission to do so, the caller should have her write a letter to that effect. For the same reason, if the debt collector calls the member and has to leave a message, either with a person or on an answering machine, he shouldn’t mention that the call has to do with collecting a debt, advises Zumwalt. As far as the community newsletter is concerned, if the manager and not the association publishes it, the manager shouldn’t publish the names of members who are the subject of debt collections.
- Debt collectors may contact someone other than member to find out where member is. If a debt collector is trying to locate the member, he can contact anyone he thinks might know the member’s whereabouts. But he must follow five rules:
- He must identity himself;
- If asked, he must identity his employer;
- He must state that he’s calling to confirm or correct location information about the member;
- He mustn’t mention that the member owes a debt; and
- He mustn’t contact the person more than once unless the person asks him to or unless he feels that the information the person gave him is wrong or incomplete and the person now has the correct information. But if the debt collector knows that the member is represented by an attorney with regard to the debt, he can ‘t contact other people for location information, says Epsten.
- Don’t use envelopes that indicate correspondence is from debt collector. The Act prohibits debt collectors from marking their envelopes with anything that would expose the fact that the correspondence is from a debt collector. Most likely it’s okay to have the name of the management company or the company’s logo on the envelope, as long as it doesn’t imply that the Jetter has to do with a debt, says Epsten. But, for example, don’t include in the return address the words “Collection Department” or similar wording, he says. Also, the Act prohibits corresponding with the member by postcard.
+ LEGAL CITATION
• Fair Debt Collection Practices Act: 15 USC §§ 1692a-1692e