Seventh Circuit Remands Prepayment Premiums Case For Trial
Impairment Of Collateral Defense Denied

Investors Not Protected By FDCPA

In my November 16, 2006 post “Worried About The Fair Debt Collection Practices Act?” I explained that the Fair Debt Collection Practices Act (“FDCPA”) generally does not apply to commercial foreclosures or the collection of business debts.  The recent decision by the Indiana Court of Appeals in Baird v. ASA Collections, 2009 Ind. App. LEXIS 961 (Ind. Ct. App. 2009) (.pdf) supports this conclusion. 

HOA dues.  Plaintiff ASA Collections filed a lawsuit against defendant Baird to recover past-due homeowner’s association fees and dues.  Baird filed a counterclaim against ASA based upon alleged FDCPA violations.  The issue was whether the FDCPA applied to the case.  Since the FDCPA regulates “consumer debts,” which are defined at 15 U.S.C. § 1692(a)(5) as obligations “primarily for personal, family, or household purposes,” one might expect homeowner’s association dues to fall under the FDCPA.  Indeed in Newman v. Boehm, 119 F.3d 477 (7th Cir. 1997), the Seventh Circuit held that the plaintiff’s delinquent condominium dues and assessments constituted “consumer debts” under the FDCPA. 

Investor.  Baird was distinguishable from Newman, however.  Baird had purchased six vacant lots at a tax sale for investment purposes.  Baird sold the lots to purchasers who wanted access to recreational facilities on the property.  Baird never built on the lots, and she did not reside in any structure in the development.  Instead, she bought the properties and sold them to various owners once the land was developed.  Thus Baird’s FDCPA counterclaim failed as a matter of law:

The evidence demonstrated that Baird may be characterized as an investor rather than a consumer in the transaction, and she has failed to show that the dues and fees that were assessed involved a “consumer debt” within the meaning of the FDCPA.

Only consumer debts.  Baird provides additional comfort for lenders and their counsel involved in Indiana commercial foreclosure litigation.  In general, the regulations and pitfalls of the FDCPA should not apply to the collection of an investment-related debt - even if the underlying nature of the debt seems to be personal in nature.  The FDCPA is designed to protect consumers, not investors.