The federal Fair Debt Collection Practices Act (the “FDCPA”) was enacted to protect consumers from unfair and abusive debt collection practices. It regulates collections made by third parties, such as attorneys, on behalf of another, but it does not apply to the activities of a creditor collecting debts on its own behalf or to the creditor’s employees.
In Ladick v. Van Gemert, the owner of a unit in a California condominium (the “Owner”) received a letter from an attorney on behalf of the condominium association demanding that he pay a past-due condominium assessment. The Owner sued the attorney in federal court, claiming that his letter violated the FDCPA in several respects - it did not give a “validation” notice or expressly state that the attorney was attempting to collect a debt and that any information obtained would be used for that purpose. Ruling in favor of the attorney, the U.S. district court held that the FDCPA did not apply to this situation because the condominium assessment did not constitute a “debt” under the FDCPA, and therefore, the attorney did not have to adhere to the FDCPA requirements.
The Owner appealed this decision to the United States Court of Appeals, Tenth Circuit, where the only issue before the court was whether the assessment constituted a “debt” under the FDCPA. The FDCPA states that a “debt” is “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.”
The attorney argued that the assessment, which was for common area maintenance and repairs, did not qualify as a “debt” under the FDCPA because it did not involve an extension of credit. He claimed that it was analogous to a tax, as opposed to a debt. The court disagreed, pointing to a recent decision of its own and decisions from other circuit courts (7th Circuit, 8th Circuit, 9th Circuit and 11th Circuit) which have found that “an offer or extension of credit” is not required for a payment obligation to constitute a “debt” under the FDCPA. [Note: the 3rd Circuit has not followed this reasoning.]
The lawyer next asserted that even if an extension of credit is not required, the assessment still was not a “debt” under the FDCPA because the Owner’s obligation to pay did not stem from a “specific transaction or agreement” with the association. The court also rejected this thinking, finding instead that “the obligation to pay a condominium assessment arises in connection with the purchase of the condominium itself.” Under this reasoning, by purchasing the unit, the Owner was obligated to pay any assessments pursuant to the condominium association’s governing documents and under California’s statute relating to condominiums; therefore, the court considered this particular assessment to be a consumer obligation “to pay money arising out of a transaction.” In addition, even though the assessment concerned the condominium’s common areas, the court found that it still had “a primarily personal, family or household purpose.” For these reasons, the court held that the assessment qualified as a “debt” under the FDCPA.
Ladick v. Van Gemert, 146 F.3d 1205 (10 Cir.1998).