Does the FDCPA Allow an Association to Communicate with a Tenant Under the Florida Condominium Act's Recent Amendments?

The Florida Condominium Act, Chapter 718, Florida Statutes, was recently amended to provide that if a unit is occupied by a tenant and the unit owner is delinquent on any monetary obligation to the association, the association may demand in writing that the tenant pay future rents and other monetary obligations of the tenant directly to the association until the association releases the tenant or the tenant vacates the premises, in order to satisfy the unit owner's obligations to the association. At first glance, it would appear that taking such an action on the part of the association would constitute a violation of the Federal Fair Debt Collection Practices Act (FDCPA), particularly 15 U.S.C.A. § 1692c's prohibition on communication with third parties regarding the debt. For several reasons, however, we believe the Condominium Act's amendments are not always inconsistent with the FDCPA.

In order to more fully understand the operation of the amendment, we must review its actual language, which can be found at Chapter 2010-174, Laws of Florida (beginning on page 47). It provides, in pertinent part:

"If the unit is occupied by a tenant and the unit owner is delinquent in paying any monetary obligation due to the association, the association may make a written demand that the tenant pay the future monetary obligations related to the cooperative share to the association and the tenant must make such payment. The demand is continuing in nature, and upon demand, the tenant must pay the monetary obligations to the association until the association releases the tenant or the tenant discontinues tenancy in the unit. The association must mail written notice to the unit owner of the association’s demand that the tenant make payments to the association. The association shall, upon request, provide the tenant with written receipts for payments made. A tenant who acts in good faith in response to a written demand from an association is immune from any claim from the unit owner."

It should first be noted that the provision states that the association "may" elect this remedy, not that it must. Therefore, it cannot be said that this provision is in direct conflict with the FDCPA, because the association can simply choose not to elect this remedy if it fears it will violate the FDCPA in doing so. There is no Morton's Fork involved, and therefore little likelihood that the state law is conflict preempted under the Supremacy Clause (U.S. Const. art. VI, cl 2.) (click here for more information on these doctrines, in the context of the Arizona immigration law).

That being said, one can understand why an association would want to exercise its rights under this provision. In order to determine if it's possible to do that without violating the FDCPA, let's look at the relevant Federal provision. 15 U.S.C.A. § 1692c(b) provides:

"Except as provided in section 1692b of this title [to ascertain the debtor's location information], without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a postjudgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector."

For this provision to apply, the communication must concern a debt, it must come from a debt collector, and the communication must not fall within an exception to the provision. Whether these criteria will be met will depend on the facts of each specific case.

Is the communication in connection with the collection of a "debt"?

The FDCPA defines 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, whether or not such obligation has been reduced to judgment." 15 U.S.C.A. § 1692a(5). Association dues and assessments are usually considered debts under the FDCPA, but fines assessed by the association for violation of association rules are not. Durso v. Summer Brook Preserve Homeowner's Ass'n, 641 F.Supp. 2d 1256 (M.D. Fla. 2008). The Florida law at issue provides that the tenant may be required to pay rent to the association if the owner is delinquent on "any monetary obligation due to the association." Presumably, this would include both dues and fines.

Is the party attempting to collect the amount owed to the association a "debt collector"?

The FDCPA defines "debt collector" as "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. Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. For the purpose of section 1692f(6) of this title, such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests."

Under this definition, the association itself would not be subject to the FDCPA (unless it uses another name in collecting the debt), since it is a creditor in this scenario, not a debt collector. See generally Madura v. Lakebridge Condominium Association, Inc., 2010 WL 2354140 (11th Cir. 2010). But a management company probably is (see Id.), and a collection agency and an attorney definitely are.

Does the Florida Condominium Act's amendment fall under any exception to § 1692c(b)?

Even if the communication concerns a debt and emanates from a debt collector, the communication will not violate the FDCPA if it falls under one of the exceptions to § 1692c(b). According to its terms, § 1692c(b) does not apply to communications (1) made with the prior consent given directly to the debt collector, (2) made with the express permission of a court of competent jurisdiction, or (3) as reasonably necessary to effectuate a postjudgment judicial remedy. It is likely that the first exception will not be met with respect to existing unit owners, although it should urge all associations to place a written consent into the documents prospective owners must sign in order to avoid liability in the future. It is also likely that the second exception is not met, unless the notice is being sent in litigation and upon the court's order. The third exception does not appear to have any application to the Florida Statute at all.

Additionally, the FTC staff commentary to the FDCPA provides that "an attorney may communicate with a potential witness in connection with a lawsuit he has filed (e.g., in order to establish the existence of a debt), because the section was not intended to prohibit communications by attorneys that are necessary to conduct lawsuits on behalf of their clients." It is not clear where this came from, or if a court would consider this a valid exception (FTC commentary is not binding on the judiciary). However, parallels can be drawn between the need to contact witnesses for the purposes of litigation and the need to contact tenants for the purposes of the Condominium Act amendment. Both involve remedies that need not be elected- just as the Act's amendments provide that the association "may" notify the tenant, in principal a creditor need not elect to file a lawsuit and seek judicial remedy. So if an exception is going to be made to allow the creditor to elect one legal remedy- a lawsuit, why not make an exception to allow the creditor to elect another legal remedy- charging past due amounts to the tenant?

Conclusion

The issue of whether electing remedy under the amendments to the Condominium Act will subject an association or its agent to FDCPA liability has not been litigated. It is likely that this issue will be addresses by a court of competent jurisdiction at some point however, given the state of the economy and of Florida real property in general. Associations should prepare for this battle by amending their association documents to provide for the unit owner's consent to elect the remedy provided in the Condominium Act's amendments, and by being prepared to establish the existence of an exception to § 1692c(b)'s application in the specific circumstances.

Violation of the Florida Consumer Collection Practices Act May Constitute a Violation of the Federal Fair Debt Collection Practices Act

The United States Court of Appeals for the Eleventh Circuit recently decided a case dealing with the interplay between the Federal Fair Debt Collection Practices Act (FDCPA) and its Florida counterpart, the Florida Consumer Collection Practices Act (FCCPA), Fla. Stat. § 559.55 et. seq. The decision, LeBlanc v. Unifund CCR Partners, G.P., --- F.3d ----, 2010 WL 1200691 (11th Cir. 2010), can be found here. According to the Court, even where the FCCPA does not create a private right of action for a violation of its terms, the FDCPA can provide a remedy.

The FDCPA has received an increasing amount of attention in recent years, with the struggling economy and the resultant proliferation of a new legal practice area- consumer debt collection defense. Lawsuits seeking damages for alleged violations of this law are becoming more and more popular. Of significantly lesser renown is the FCCPA, similar legislation enacted by the Florida legislature. In the spirit of the FDCPA, and as a supplement thereto (see Fla. Stat. § 559.552), the FCCPA makes it a violation of state law to engage in certain practices in the collection of consumer debt, including impersonating a law enforcement agency, using or threatening violence or force, disclosing the status of the debt to third parties, failing to disclose that the debt has been disputed, harassing the debtor, etc. The exhaustive list, which can be found at Fla. Stat. § 559.72, should look familiar to FDCPA attorneys.

The FCCPA also provides administrative remedies (Fla. Stat. § 559.730) and civil remedies (Fla. Stat. § 559.77) for violations of § 559.72, each of which is inspired by Federal law (15 U.S.C. §§ 1692(k) and 1692(l)).

In addition to these sections mirroring the FDCPA, the FCCPA requires consumer collection agencies located within the state and consumer collection agencies located outside the state conducting business here to register with the Office of Financial Regulation. Fla. Stat. § 559.553. But while it authorizes administrative actions against a consumer collection agency who fails to register, the FCCPA does not create a private right of action under Florida law for failing to register.

This brings us to the central question addressed by the Eleventh Circuit in Leblanc- whether relief can be provided under the Federal FDCPA for failing to register as a consumer collection agency as required by the Florida FCCPA. The issue came to the court because the Defendant collection agency allegedly sent a letter to a Florida debtor, prior to registering under the FCCPA, which threatened to sue him. The District Court ruled summarily that this violated the FDCPA because the letter contained a threat to take an action that could not legally be taken (i.e. sue the debtor in Florida without registering under § 559.553), and the collection agency appealed. The Eleventh Circuit reversed, holding that not all FCCPA violations amount to an FDCPA violation, and that in this case, based upon the specific language of the letter, a reasonable juror could find that the least sophisticated consumer would view the letter as something other than a threat to sue.

This decision is consistent with prior District Court rulings, and it makes sense. If the letter is a threat to take action that cannot legally be taken, it should be a violation of the FDCPA, § 1692e(5). The source of the law that makes the threatened action illegal, be it Federal consumer protection law, state criminal law, Federal Bankruptcy law, etc., is immaterial. Conversely, if the letter is not a threat to take an action that cannot legally be taken, then no section of the FDCPA can be invoked, and so the fact that a violation of the FCCPA has occurred is of no consequence. As a result, while the ruling should be noted, especially for its in-depth discussion of the least sophisticated consumer standard: "the least sophisticated consumer can be presumed to possess a rudimentary amount of information about the world and a willingness to read a collection notice with some care...however, the test has an objective component in that while protecting naive consumers, the standard also prevents liability for bizarre or idiosyncratic interpretations of collection notices by preserving a quotient of reasonableness,” it should not have a significant effect on the collection agency's policies and procedures.

United States Supreme Court Rules Debt Collectors Are Not Entitled to Bona Fide Error Defense for Mistakes of Law

The United States Supreme Court handed down its decision in the case of Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA today, holding, as expected, that the Fair Debt Collection Practices Act's bona fide error defense, discussed previously on this blog here, does not apply to mistakes of law. Justice Sotomayor delivered the opinion of the Court, in which Chief Justice Roberts and Justices Stevens, Thomas, Ginsberg, and Breyer joined (with Justice Breyer also writing a separate concurring opinion). Justice Scalia wrote an opinion concurring in part and concurring in the judgment, and Justice Kennedy dissented, with Justice Alito joining in his opinion.

The majority cites several sources of authority in support of its decision, some compelling and some not so compelling. In the coming weeks, we will explain each argument advanced by the majority and the corresponding arguments made by the concurrences and the dissent. In the meantime, it is important to note the practical effect of the ruling: a debt collector or collection attorney's mistaken belief in the legality of an action under the FDCPA will not excuse him or her from liability. As a result, the only way to completely shield yourself from liability for a mistake of law is under an advisory opinion provided by the Federal Trade Commission.

It should also be noted, however, that according to the majority this decision does not affect the ability of the trial court hearing an FDCPA lawsuit to award actual damages in a de minimis amount (even zero) under § 1692k(a)(1), or as the majority puts it, "to adjust [additional] damages where a violation is based on a good-faith error," under § 1692k(b), which provides:

(b) Factors considered by court

In determining the amount of liability in any action under subsection (a) of this section, the court shall consider, among other relevant factors—

(1) in any individual action under subsection (a)(2)(A) of this section, the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, and the extent to which such noncompliance was intentional; or

(2) in any class action under subsection (a)(2)(B) of this section, the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, the resources of the debt collector, the number of persons adversely affected, and the extent to which the debt collector’s noncompliance was intentional.

 

With this in mind, debt collectors and collection attorneys should remain dedicated to keeping abreast of developments in Fair Debt Collection Practices Act law, not only to keep themselves in compliance with the law and thereby avoid liability altogether, but to minimize their exposure to damages in the event they are sued by demonstrating their good faith.

Another Federal Circuit Holds Debt Collectors Can't Leave Voicemail Without Violating the FDCPA

The Fair Debt Collection Practices Act (FDCPA) prohibits a debt collector from disclosing information regarding the debt to third parties in the debtor's home (except the debtor's spouse). It also requires a debt collector to disclose to the debtor in the first communication and in every subsequent communication, whether written or oral, that the communication is from a debt collector and is an attempt to collect a debt. See generally 15 USC sections 1692c and 1692e.

When read together, these requirements make it very difficult, if not impossible, to leave manual or automated messages on debtor voicemail systems or answering machines. If the debt collector leaves a message on a debtor's answering machine indicating its identity as a debt collector and the message is retrieved or overheard by a third party in the household, the debt collector has violated the first prohibition. If it leaves the message without the disclosure that the communication from the debt collector, it violates the second prohibition.

Another Federal Circuit weighed in on this predicament last week. The Eleventh Circuit (the Appeals Court residing over Florida's District Courts) held in Edwards v. Niagara Credit Solutions, Inc. (No. 08-17006, Decided October 14, 2009) that while it may prove difficult for a debt collector to balance these prohibitions, there is no guaranteed right to leave messages under the FDCPA, and if a debt collector believes these provisions read together make it impossible to leave messages without violating the FDCPA, it should not leave messages at all.

This is not a novel decision. The seminal case emerged from the Southern District of New York in 2006, Foti v. NCO Fin. Sys., 424 F.Supp.2d 643 (S.D.N.Y. 2006). It confirmed that both disclosing the identity as a debt collector and failing to disclose the identity as a debt collector on a machine or voicemail (whether through an automated call or a manual one) constitute an FDCPA violation. Florida District Courts have agreed. See Berg v. Merchant's Ass'n Collection Division, Inc., 586 F.Supp.2d 1336 (S.D. Fla. 2008); Belin v. Litton Loan Servicing, LP, 2006 WL 1992410 (M.D. Fla. 2006). The judges in these cases heard (and dismissed) many different arguments regarding Foti's reading of the FDCPA, from arguments that it is against public policy in general to arguments that it is an unconstitutional restriction on free commercial speech.

But this most recent installment discusses the situation from the perspective of the bona fide error defense, which we have detailed in prior posts and discussed on the Debt Collection Regulations Forum on LinkedIn (username and password required). Niagara argued that it's policy to not disclose its identity was a decision it made so as to avoid violation of the provision prohibiting disclosure to a third party. It had already conceded that it in fact violated the FDCPA, and I think at this point all authority indicates that it did. Thus, the only question before the Court was whether a debt collector can avoid liability under the bona fide error defense when it intentionally violates one provision of the FDCPA in order to comply with another.

Not surprisingly, the Court answered the question in the negative, holding that one cannot 'destroy the village to save it.' It reasoned that none of the three elements of a bona fide error were present. The testimony indicated that the policy was instituted on purpose, which means the violation was not unintentional. It also indicated that the debt collector was well aware that the policy would result in a violation of the meaningful disclosure requirement, and thus the violation was not bona fide or objectively reasonable, inasmuch as it was not a mistake at all. Finally, with respect to the third requirement, procedures reasonably adapted to avoid the error, the Court relied without explanation on the trial court's finding that this element was not satisfied.

If it wasn't previously abundantly clear, it should be now: leaving automated voice messages is problematic at best. Whenever possible, upon initial debtor contact the debt collector should get authorization from the debtor to leave a message on subsequent calls if the debtor is unavailable. And absent this preauthorization (which may rarely be given), debt collectors should be very careful to leave messages at all. With respect to the challenges this presents to debt collectors, courts are almost universally in agreement: Congress provides the only appropriate forum for raising public policy arguments regarding the FDCPA, and I think consumer advocates and creditor's rights attorneys can agree- the FDCPA needs to be updated (see a recent conversation I had with Bob Lawless on his blog, Credit Slips.)

Availability of the FDCPA's Bona Fide Error Defense to Debt Collectors Who Don't Seek Legal Advice

A recent Federal case has suggested that it is difficult, if not impossible, for a debt collector to shield itself from liability for violation of the Fair Debt Collection Practices Act (FDCPA) due to a misunderstanding of the law unless it has sought the advice of legal counsel or a governmental agency.

In Ruth v. Triumph Partnerships, et.al., decided by the U.S. Court of Appeals for the Seventh Circuit in August, the Plaintiff consumer filed a class action lawsuit alleging that the Defendant collector violated the FDCPA by notifying the consumer that information related to the debt could be shared with third parties for the purposes of servicing the account unless the debtor completed and returned an included "Opt-Out Response Form" (a violation of the provision precluding threats of action that cannot legally be taken). The collector defended on the ground that because after soliciting sample letters from a vendor, submitting the notice to the collector's compliance department for approval, and consulting applicable industry publications, it had concluded that the language was required under the Gramm-Leach-Bliley Act's notice provisions and not in violation of the FDCPA, the collector could avoid liability under the bona fide error defense.


The court disagreed. It first recited the elements of the FDCPA's bona fide error defense: (1) that the violation was unintentional, (2) that the violation resulted from a bona fide error, and (3) that the error occurred despite the collector's maintenance of procedures reasonably adapted to avoid the error. The court then noted a circuit split currently existing as to whether the bona fide error defense applies to legal errors like the one in this case at all, and the U.S. Supreme Court's recent granting of certiorari in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich on that very issue. The Second, Eighth, and Ninth Circuits currently hold that the bona fide error defense applies only to clerical errors, and not mistakes of law, while the Sixth and Tenth Circuits have held that mistakes of law do qualify for the bona fide error defense.

The Ruth court declined to take a side in the circuit split, finding that even if the bona fide error defense is available to collectors who commit an FDCPA violation as a result of a misunderstanding of the law, the defense was not available to the collector in the case at bar because it had not taken actions sufficient to satisfy the requisite third element of the defense.  In order to satisfy this element, the court held, it was not enough to consult industry pamphlets and attend FDCPA compliance training; but rather:

"if the bona fide error defense is available at all for errors of law, it is available only to debt collectors who can establish that they reasonably relied on either: (1) the legal opinion of an attorney who has conducted the appropriate legal research, or (2) the opinion of another person or organization with expertise in the relevant area of law—for example, the appropriate government agency."

Therefore, in the absence of record evidence that the collector sought an opinion from a legal or regulatory authority, the court entered judgment against the collector on the availability of the bona fide error defense.

This decision should be of note to collectors, especially if the U.S. Supreme Court sides with the Sixth and Tenth Circuits in the case before it (which will be monitored on this blog, and more on which can be read here, and the lower court's decision here).  Obtaining a legal opinion from an experienced attorney is a relatively inexpensive endeavor (sometimes less than $1,000) when compared to potential liability in an FDCPA class action lawsuit (which could be up to $500,000 or more, plus costs and attorney's fees).