Third-Party Management Debt Collector?

Posted by Scott Zucker on May 23, 2023 12:00:00 AM

The Fair Debt Collection Practices Act (FDCPA) was enacted in 1978 to protect consumers from abuse by debt collectors. The FDCPA defines a debt collector as “any person who regularly collects, or attempts to collect, consumer debts for another person…”. A person is certainly not considered a debt collector when it seeks to collect its own debts under its own name.
But what about a third-party management company acting on behalf of a property owner? Can a third-party manager seek to collect unpaid rent from an owner’s tenants and avoid claims of being subject to the Act?

Reynolds v. Gables Residential Services

One such case was Reynolds v. Gables Residential Services, Inc.(Southern District Florida, 2006). In that case, the tenant, Reynolds, sued the property management company alleging violations of the FDCPA. The court found that while the property manager would “appear on the surface to meet the statutory definition of a debt collector”, the claim by the tenant ignored the exclusionary language of the Act, most notably the exclusion for any person if such activity “is incidental to a bona fide fiduciary obligation”.

The court found that it was clear not only under the terms of the lease agreement but also based on the general relationship between the property owner and its property manager that Defendant Gables “had a fiduciary relationship and obligation…to manage the apartment property and collect monthly rent”. Ultimately the Court held that the monies due from the tenant were payable to Gables “not as a debt collector but as Manager of the property.”

While that clarification is good news to property managers making calls to recover unpaid rent, the FDCPA still provides a number of clarifications regarding “best practices” when it comes to collecting a debt (even unpaid rent) from a customer that is protected under the Act.

Understanding Debt Collection

There is a lot to understand when it comes to debt collection practices. For example, a debt collector should not communicate with a consumer at any unusual time (generally before 8:00 a.m. or after 9:00 p.m. in the consumer’s time zone) and calls should not be made to the consumer’s place of employment. If the consumer has retained a lawyer, all calls should be made to the lawyer. Communications with a consumer should cease if the consumer requests that the debt collector stop communications; and the debt collector should not discuss the debtor’s status with third parties without the debtor’s consent (most rental agreements include an alternate contact or emergency contact section).

Lastly, the debt collector cannot participate in any harassing or abusive practices to collect the debt (threatening violence or using profane language) and must not make any false or misleading representations about the collection of the debt (such as threatening criminal prosecution).

As more and more property managers, especially in remote or virtual facilities, begin communicating with their tenants regarding unpaid rent, it becomes more and more important that the role of the property manager be made clearer, including the obligation of the property manager not only to rent the units but to collect the rent for those units. Property managers should include language in their management agreements specifying that any actions taken to collect rent are done pursuant to the manager’s agreement with the property owner and that they are being delegated to do so on the owner’s behalf.

Stay Safe and Happy Storing!

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