The Fair Debt Collection Practices Act (FDCPA), enforced by the Federal Trade Commission, is a federal law that prohibits debt collectors from using abusive, unfair or deceptive practices to collect debt from consumers. It applies in all states equally, however, each state has the right to strengthen (not weaken) the law as it chooses.
It’s critical that self-storage operators understand and abide by this law. Here’s an overview as well as advice for compliance.
To Whom Does the Law Apply?
The stated purpose of FDCPA as written in 15 U.S. Code §1692 is to “eliminate abusive debt collection practices by debt collectors, to ensure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent state action to protect consumers against debt collection abuses.”
The law applies to anyone who collects a debt for another person or company (a third-party debt collector). Generally, a self-storage operator wouldn’t be held liable if the third-party debt collector he hires violates the law. The law also doesn’t apply to a self-storage operator who collects his own debt (except in certain states). In fact, there have been several court decisions holding that there’s no cause of action against a self-storage business collecting on its own debts.
For example, in Sobayo v. Public Storage (U.S. District Court, California, 2013), the court found that the plaintiff failed to state a FDCPA claim because, “as a threshold matter, the complaint pleads no facts demonstrating that Public Storage is a business principally engaged in debt collection. Moreover, leave to amend would be futile because it is entirely implausible that a self-storage company, whose principal business is self-storage unit rentals, would qualify as a debt collector under the FDCPA.”
However, if a self-storage operator sends a demand letter under a name other than that of his storage business, the law would apply, and he could be held liable. Also, in states including California, Florida and Texas, the law has been enhanced to apply to the creditor himself. If you operate self-storage in these states, the law directly applies to you.
Limits of Communication
One of the most important sections of the law deals with the limits of communication between the debt collector and the debtor. The law provides that without the prior consent of the consumer or the express permission of a court of competent jurisdiction, a debt collector may not communicate with the consumer regarding his debt in the following situations:
- Any unusual time or place known, or that should be known, to be inconvenient to the consumer. In the absence of evidence to the contrary, a debt collector shall assume the convenient time for communicating with a consumer is between 8 a.m. and 9 p.m. local time, at the consumer’s location.
- The debt collector knows the consumer is represented by an attorney with respect to the debt and knows, or can readily discover, the attorney’s name and address—unless the attorney fails to respond within a reasonable time or consents to direct communication with his client.
- At the consumer’s place of employment if the debt collector knows or has reason to know the employer prohibits the consumer from receiving such communication.
What It Can Cost You
The FDCPA dictates that any debt collector found guilty of violating the law will pay:
- Actual damages: Any actual damages sustained by the consumer.
- Statutory damages: Any additional damages as the court allows, up to $1,000 in the case of an individual. In the case of a class action, the total amount for all class members can be as much as $500,000 or 1 percent of the debt collector’s net worth.
- Attorney’s fees and court costs: The costs of the action as well as a reasonable attorney’s fee determined by the court.
A Good Guideline
If you follow the statutory notice procedures outlined in your state lien laws, there should be no liability for collecting your own debt. Further, if your collections communication with tenants via phone, letters and in person is reasonable, there shouldn’t be any concern about violating the law. The problems occur when operators act inappropriately in their collections efforts.
For example, here are a few prohibitions under the California Fair Debt Collection Practices Act. Under that law:
No debt collector shall collect or attempt to collect a consumer debt by means of the following conduct: (a) The use, or threat of use, of physical force or violence or any criminal means to cause harm to the person, or the reputation, or the property of any person; (b) The threat that the failure to pay a consumer debt will result in an accusation that the debtor has committed a crime where such accusation, if made, would be false; (c) The communication of, or threat to communicate to any person the fact that a debtor has engaged in conduct, other than the failure to pay a consumer debt, which the debt collector knows or has reason to believe will defame the debtor; (d) The threat to the debtor to sell or assign to another person the obligation of the debtor to pay a consumer debt, with an accompanying false representation that the result of such sale or assignment would be that the debtor would lose any defense to the consumer debt; (e) The threat to any person that nonpayment of the consumer debt may result in the arrest of the debtor or the seizure, garnishment, attachment or sale of any property or the garnishment or attachment of wages of the debtor…
The law’s main goal is to protect consumers and debt collectors that are abiding by fair rules. Even if the law doesn’t strictly apply to you, you should use it as a reference for appropriate communication and action when collecting debt.
If you’re unsure about your own collection practices, seek guidance from your attorney or state association. Violating FDCPA could result in considerable fines. Stay current with your state’s laws, and enact procedures and policies so everyone in your organization follows them.
Scott Zucker a partner in the law firm Weissmann Zucker Euster Morochnik P.C. in Atlanta, which specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. Zucker is a frequent speaker at self-storage industry events, author of “Legal Topics in Self-storage: A Sourcebook for Owners and Managers,” and a partner in the Self-storage Legal Network, a subscription-based legal service for storage owners and managers. For more information, call 404.364.4626; e-mail [email protected]; visit www.wzlegal.com.