Consumers are protected by certain laws when it comes to debt collection. Chief among them is the federal Fair Debt Collection Practices Act. But, does this law apply to homeowners associations, too?
Fair Debt Collection Practices Act Definition
The Fair Debt Collection Practices Act (FDCPA) is a federal law governing the collection of debt. The law was passed by Congress in 1977 and aims to prevent deceptive, abusive, and unfair debt collection practices. According to the Act, debt collectors are not allowed to harass consumers or employ deceptive tactics when attempting to collect on their debts. In addition to what debt collectors can’t do, the Act also defines what debt collectors must do when attempting to collect a debt.
Are HOA Collections Governed by the FDCPA?
Homeowners living in HOA communities have an obligation to pay monthly dues to their association. The HOA then uses these dues to fund the many expenses required to keep the community in operation. These expenses can include but are not limited to maintenance costs, insurance premiums, and management fees.
Like any payer-payee relationship, though, HOAs are not immune to delinquencies. It is not uncommon for homeowners to default on their monthly fees. Usually, these delinquencies result in late fees, the suspension of privileges, and even lawsuits. In some cases, HOAs will also attach a lien to the delinquent owner’s property and even initiate foreclosure proceedings. Associations do all of this in an effort to collect the debt delinquent homeowners owe.
Sometimes, though, an association will also transfer the bad account to a third-party agency as part of its HOA debt collection policy. This is where the FDCPA comes into play.
In general, the FDCPA does not recognize homeowners associations as debt collectors. As such, the Act does not typically apply to them. The FDCPA only applies to debt collectors, i.e. any entity or individual whose primary business is to collect debt on behalf of third parties. So, while the FDCPA may not apply to HOAs, it does apply to the collectors HOAs employ. Many courts have also ruled that the FDCPA can apply to attorneys if it collects debts or unpaid dues on the association’s behalf.
Communication Standards for HOA Collection by Third Parties
According to the FDCPA, debt collectors must use any communication that even the “least sophisticated consumer” can understand. This standard is in place so that debt collectors don’t use fancy or complex language in an attempt to confuse or deceive the consumer. It offers protection to even the least experienced individuals. Additionally, using simple language also eliminates vague terms, which can lead to misunderstandings.
Adhering to this standard, the FDCPA requires debt collectors to provide the following communication to a consumer, either in oral or written form: “This communication is from a debt collector in an attempt to collect a debt. Any information obtained will be used for that purpose.” Every succeeding communication should then include either “This communication is from a debt collector,” or “this is an attempt to collect a debt.”
Following the initial communication, the debt collector must then provide the following within five (5) days in written form:
- Amount of debt owed;
- Name of the creditor;
- A statement saying that the consumer has 30 days to dispute the debt’s validity or else the debt will automatically be deemed valid by the collector;
- A statement saying that, if the consumer disputes the debt’s validity within the timeframe, the debt collector must then secure verification of the delinquency or a copy of the judgment. The collector must then mail a copy of that document to the consumer; and,
- A statement saying that the debt collector will provide the name and address of the original creditor if the consumer supplies a written request to do so within the 30-day period.
Prohibited Acts Under the FDCPA
In accordance with the FDCPA, banned acts include but are not limited to the following:
- Talking about the debt with any party other than the consumer
- Calling the consumer before 8 a.m. or after 9 p.m.
- Talking to the consumer when an attorney already represents them
- Any acts of harassment or abuse, such as:
- Threatening the consumer with violence or other illicit acts
- Using profane or obscene language
- Making incessant calls
- Making false or misleading statements, such as:
- Falsely introducing themselves as an attorney
- Implying or stating outright that the consumer will face criminal charges upon failure to settle the debt
- Threatening the consumer with consequences that the debt collector can’t legally do
- Attempting to collect an unauthorized amount
Who Handles Fair Debt Collection Practices Act Violations?
Debt collectors have been known to abuse their position and employ illegal tactics. Consumers who don’t know the law well enough will sometimes fall prey to these unfair practices. If a consumer or homeowner believes they are a victim of FDCPA violations, they can file a complaint with one of the following agencies:
- Federal Trade Commission. The FTC is the main agency inc charge of enforcing the Fair Debt Collection Practices Act.
- Consumer Financial Protection Bureau. One of the CFPB’s many responsibilities is enforcing the FDCPA.
- State Attorney General’s Office. For state-level complaints, consumers can reach out to their State Attorney General’s Office. Go to their website for more information.
As per the FDCPA, consumers can file a federal claim for actual damages as well as additional damages up to $1,000. The claim can also include coverage for attorney’s fees and other reasonable costs.
Are HOA Management Companies Debt Collectors?
While all courts recognize HOA dues as consumer debt, there is some debate as to whether or not HOA management companies count as debt collectors. There is no universal answer to this, as situations should be evaluated on a case-by-case basis. That said, it really comes down to the primary purpose of the management company.
If an HOA management company’s primary services consist of collecting unpaid fees, then courts may deem it a debt collector. In that case, the FDCPA does apply to the management company and its practices. In contrast, if a management company’s primary focus is maintaining common areas, it might not fall under the FDCPA or what counts as a debt collector.
Something to Think About
The Fair Debt Collection Practices Act exists to prevent debt collectors from using unfair, deceptive, and abusive tactics when attempting to collect a debt. At face value, the FDCPA may not seem like something HOAs should worry about. But, considering the legal implications of associating with a non-compliant third-party collector, HOAs would do well to carefully select a collection agency.
Don’t want to outsource your collection efforts? Condo Manager makes dues collection and delinquency tracking easier with automated processes. Call us today at (800) 626-1267 or contact us online for a free demo.
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