Collection agencies

Why handing off the file changes the rules

The federal Fair Debt Collection Practices Act (FDCPA) defines a "debt collector" as anyone who regularly collects debts owed to someone else. The statute's own language reaches

"who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another"

Source: 15 U.S.C. § 1692a(6), Cornell Legal Information Institute

Your board, sending late notices in the association's own name for money owed to the association, generally falls outside that definition. An outside collection agency, or a law firm regularly filing demand letters and lien-foreclosure suits across many client associations, generally falls inside it. The Supreme Court has held that an attorney who regularly collects consumer debts through litigation meets the FDCPA's debt collector definition, even though the association itself does not. That means the day you sign an agency contract, or your attorney's office starts sending collection letters as a matter of routine business, a body of federal notice and conduct law attaches that did not apply when the board was doing the same work in-house.

What the agency has to tell the owner

Once a debt collector contacts an owner, federal rules require a written validation notice with specific content, plus a window for the owner to dispute the debt in writing.

"an itemization of the current amount of the debt that reflects interest, fees, payments, and credits since a particular date" and "an end date for a 30-day period when you can dispute the debt."

Source: What information does a debt collector have to give me about the debt?, Consumer Financial Protection Bureau

If the owner disputes in writing inside that 30-day window, the agency must stop collecting the disputed amount until it has answered the dispute. A board that keeps calling the owner directly, or tells its manager to "just keep sending statements," while the agency is mid-dispute can undercut the very process it hired the agency to run.

Some states go further than federal law

Whether your association's own collection conduct, not just the agency's, is regulated by state law varies by state. California's Rosenthal Fair Debt Collection Practices Act, for example, has been described as reaching an original creditor collecting its own debt, not only a third-party agency, which is broader than the federal FDCPA's own-name exclusion. Check your state's consumer-protection statutes, not just the federal rules, before assuming "we're not a debt collector" settles the question.

Before you sign an agency contract

Confirm the agency is licensed to collect debts in your state; requirements vary and this file does not catalog them. Have your association attorney review the agency contract before signing, since fee structures, reporting obligations, and who is liable for a compliance misstep are negotiated terms, not defaults. Make sure the agency's escalation steps line up with your board's own collection policy, so an owner gets the same sequence of notices whether the board or the agency is running the file.