7th Circuit clears up Fair Debt Collection issue

In 2009, the Third District of the Illinois Appellate Court issued an opinion in American Management Consultant LLC v. Carter that, in part, confused landlords and their legal counsel.  In the case, involving an appeal of a Bolingbrook forcible entry and detainer case, the Defendant argued that the landlord had violated the Fair Debt Collection Practices Act.  The Illinois court agreed saying:

“we now hold, as a matter of first impression, that lessors are required to comply with the FDCPA in their efforts to collect past-due rent from their lessees”.

This result was confusing in that the FDCPA applies to “debt collectors” but, generally, a debt collector is not a creditor seeking to collect that creditor’s own debt (ie. a collection agency or an attorney might be a debt collector, but a landlord generally is not!).

As a result of the case, it became commonplace to see the FDCPA “mini-miranda” attached to a five day notice (you know, the part that reads “This is an attempt to collect a debt and any information received will be used for that purpose”).

After “winning” at the state court level, the tenant, Carter, filed an action in Federal court for damages under the FDCPA against AMC, LLC, the successor company to American Management Consultant LLC to collect damages.  In the Federal case Carter v. AMC, LLC, the court determined that, in fact, AMC, LLC, who we learn in the court opinion is not the owner of the rental property, but actually only manages the property, was not a debt collector.  The court points out that AMC, LLC won at the Federal district court level when the Federal district court judge who clarified that:

a “debt collector” is someone who regularly collects, or attempts to collect, “debts owed or due or asserted to be owed or due another.”  An entity that tries to collect money owed to itself is outside the FDCPA.

While agreeing with the statement of the district court judge, the appellate court pointed out that the district judge was under the impression that AMC, LLC was the owner of the building.  The appellate court pointed out that the entity was merely a manager.  The court goes on to say that this means that AMC, LLC could “potentially” be a debt collector.  The court summarized another exemption from the FDCPA:

The Act excludes not only the original creditor but also any person who tries to collect a debt that “was not in default at the time it was obtained by such person.”

The court went on to examine whether or not a management company can “obtain” a debt without buying it and determined that, like a loan servicer, a management company can obtain a debt in such a way.  The court found that, in this case, AMC, LLC is not a debt collector because it acquired the right to the debt of Carter before Carter was delinquent on the debt.  The Court left open whether or not AMC, LLC’s attorneys had violated the act.

What’s the moral of this story?  Landlords, their managers, and their attorneys still need to be wary of Fair Debt Collection Practices issues, but, for now, a confusing piece of law has been clarified.