Fair Debt Collection Practices Act and Its Impact on Timeshare

The FDCPA has traditionally governed how “debt collectors” collect debts on behalf of creditors. Those collecting their own debts are exempt from the law. But some recent changes affect those who are collecting even their own debts.

These recent changes have been sending our clients to us with a lot of questions. These include:

1. How will the new rules affect a collection company’s ability to collect on a defaulted note/mortgage?
2. How will the new rules affect a law firm’s/collection company’s ability to foreclose on a defaulted note/mortgage?
3. How will the new rules affect a homeowners association’s ability to collect on its own past due maintenance fees and taxes?
4. How will the new rules affect a collection company’s ability to collect on past due maintenance fees and taxes?
5. How will the new rules affect a law firm’s/collection company’s ability to foreclose on HOA assessments?

After our analysis, the questions can really be broken down into whether the party making a collection is a “creditor” or “debt collector” under the FDCPA. The FDCPA and the new Regulation F only apply to “debt collectors,” who are defined as any person whose principal business “is the collection of debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due, or asserted to be owed or due, to another.”

So how are parties that regularly engage in collection activities in the real estate industry categorized?

• Homeowners associations and landlords – prior case law notes that landlords and homeowners associations are not debt collectors under the FDCPA, as they are direct creditors seeking to collect their own debt. However, Regulation F now makes it clear that these entities can be considered debt-collectors if they use any name other than their own when collecting a debt.
• Similarly, an association’s management company is likely not a debt collector – so long as it has other duties to an HOA, aside from simply collecting debts on behalf of an association.
• HOA lawyers or others whose “principal purpose” is to collect debts or who “regularly” collect or attempt to collect debts are debt collectors under the Act.

Most of these new rules apply only to debt collectors – but there are a few instances where creditors should take note.

Related: Ten Tips for a Successful Maintenance Fee Collection Cycle

Emails and Text Messages

Generally speaking, in order for a debt collector to use email or text messages, they must first obtain consent directly from the consumer. However, there is required language for creditors to use to inform consumers that they intend to share their email address with a debt collector, and the debt collector must use reasonable means to confirm that the creditor has followed all required procedures before utilizing a consumer’s email address.

Time-Barred Debt

Regulation F strictly prohibits debt collectors from threatening to sue – or from actually bringing – any legal action against a consumer where the debt collector either knows (or should know) that the statute of limitations to collect the debt has expired. This appears to be a significant change in the law that creates strict liability against the debt collector for pursuing time-barred debts. Creditors and their debt collector should probably have a system to discuss the debtor’s potential defenses in detail before sending any initial communications to the debtor – to ensure that the debt is not time-barred and there is no improper threat of legal action.

Itemization Date

The FDCPA now requires the debt collector to include in the validation notice an itemization of the account balance from a specified “itemization date” through the date of the validation notice. This allows debt collectors to choose as their “itemization date” one of five specified reference dates:

1. the date of the last periodic statement or written account statement or invoice provided to the consumer by the creditor;
2. the charge-off date;
3. the last payment date
4. the transaction date; or
5. the judgment date.

Because of the nature of the “itemization date,” that information will most likely come from the creditor. Creditors will need to coordinate with their third-party debt collectors to provide the requisite documentation to support the itemization date the debt collector is using, the amount of the debt as of that date, and an itemization of any charges and fees accruing after the itemization date.

Itemization Date

EXCEPTION FOR RESIDENTIAL MORTGAGE DEBT: For residential mortgage debt, if a periodic statement is required under Regulation Z, 12 CFR 1026.41, at the time a debt collector provides the validation notice, a debt collector does not need to provide this new debt validation information.

The key takeaway for timeshare real estate professionals is that most of these new rules apply only to debt collectors, but there are some nuances and exceptions.

If you are interested in reading all of Regulation F’s provisions, we recommend using the following link: https://www.consumerfinance.gov/rules-policy/regulations/1006/2021-11-30/18/. This link includes not only the text of the new rules but also the official interpretation of each rule from the CFPB. And you can contact us with your questions as well.

Philip W. Richardson has been the sole shareholder of Eck, Collins & Richardson since acquiring the firm in 2009. Daniel C. Zickefoose joined the law firm of Eck, Collins & Richardson, PL in 2011 as an Associate Attorney. Eck, Collins & Richardson is a firm of attorneys, paralegals, and legal assistants, with over 100 years of combined experience in real estate, timeshare, land trustee, escrow, collections, and foreclosure law. We also work closely with several affiliated businesses to provide a full list of comprehensive services to our clients, across the United States. Between the law firm, title agencies, and trust companies, we serve timeshare clients in 22 states, the United States Virgin Islands and The Bahamas.