The Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from making false or misleading representations and from engaging in abusive and unfair practices in the collection of consumer debt. Violations of the Act can result in fines and damages against the association plus attorneys' fees.
FDCPA Applies to Assessments. Associations that hire third parties to collect delinquent assessments, such as lawyers, collection companies, and management companies, are governed by the FDCPA. In Thies v. Law Offices of William A. Wyman (SD Cal 1997) 969 F.Supp. 604, the court held that homeowner association assessments fall under the Fair Debt Collection Practices Act. The FDCPA requires that certain disclosures be made to homeowners. In addition, debt collectors are prohibited from making harassing telephone calls, making idle threats, directly contacting owners represented by counsel, etc.
Debt Collection Licensing Act. Effective January 1, 2021 Senate Bill 908 requires most entities that collect consumer debts must be licensed and regulated by the State of California. Debt Collectors are defined in the law at Section 100000(j) as "...any person who, in the ordinary course of business, regularly, on the person's own behalf or on behalf of others, engages in debt collection." A "person" includes corporations and LLCs. Debt collectors will have to apply for a license, undergo a criminal history record check and even be fingerprinted. In addition, annual reports will have to be filed with the state by the debt collector and a surety bond of at least $25,000 will have to be maintained.
Routine Collection Activities. After over a year of confusion created by Senate Bill 908, which seemed to require that HOAs be licensed to collect assessments, California's Department of Financial Protection and Innovation (DFPI) decided that routine HOA assessment activities do not require a license. The DFPI's website posted FAQs that:
- Routine HOA assessments do not constitute a consumer credit transaction under the Debt Collection Licensing Act (DCLA).
- Routine HOA assessments are not considered consumer debt.
- Collection of assessments does not turn an HOA into an entity engaged in the business of debt collection.
The DFPI decision aligns with recent case law:
The Association is not a debt collector for the purpose of the Rosenthal Act, because the definition of debt collector is premised upon the act of collecting consumer debt. In other words, because the Court finds that homeowner’s assessments are not a consumer credit transaction for the purpose of the Rosenthal Act, it necessarily follows that the Association cannot be a debt collector under that statute (i.e., the Association does not in the ordinary course of business, regularly, on behalf of that person or others, engage in the collection of consumer debt). (Dickson v. Century Park East; internal quotation marks removed.)
Even for delinquent collections, the root of the transaction is not an extension of credit. Therefore, no license is required. The reference to routine includes, "A regular or special assessment and any late charges, reasonable fees and costs of collection, reasonable attorney's fees, if any, and interest, if any, as determined in accordance with subdivision (b), shall be a debt of the owner of the separate interest at the time the assessment or other sums are levied.” (Civ. Code § 5650(a).)
Recommendation. Even though a debt collection license is not required for routine assessment collection activities, boards should have legal counsel review their collection policies and practices.
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