FDCPA Doesn’t Apply to Unpaid Taxes, Appeals Court Rules

A recent court ruling has established a profound precedent for some debt collection lawsuits, primarily that the Fair Debt Collection Practices Act (FDCPA) does not apply to back taxes.

Normally, the FDCPA serves to protect people from abusive debt collection practices. The FDCPA greatly regulated debt collectors by restricting what third parties can be informed of a debt, hours debt collectors may call, and rights that debt collectors are required to inform collecting parties of in writing. In the past, FDCPA lawsuits have established that failure to play by these rules can result in substantial awards for plaintiffs.

But the new debt collection lawsuit centers on a specific type of debt: back taxes.

In this unfair debt collection lawsuit, a group of homeowners took legal action against debt collection agencies, alleging that these companies violated the FDCPA. In these cases, houses went into foreclosure not over debt to a bank or borrower, but for unpaid taxes.

New York City foreclosed on the liens through third parties, who collected attorney fees and costs during the foreclosure. Homeowners alleged that the practice of collecting attorney fees through this process violated FDCPA regulations.

However, the companies were collecting tax liens, debts owed from back taxes. The Second Circuit Court ruled that this type of debt is “outside the scope of the FDCPA.”

The appellate court asserted that in these cases, the debt collected isn’t part of the normal borrower-lender relationship covered under the FDCPA. Instead, these cases center on the relationship between government and taxpayers, outside of the purview of the federal regulation.

Despite this ruling, FDCPA lawsuits are still going to be filed against bill collectors and debt collection lawsuits. FDCPA lawsuits can seek a wide variety of types of compensation. Unfair debt collection lawsuits can seek damages for emotional distress, including stress-related illnesses. Additionally, FDCPA lawsuits against debt collectors have sought lost wages in situations when debt collectors allegedly interfered with plaintiffs’ abilities to do their job due to debt collector harassment.

The federal regulation allows plaintiffs to file lawsuits for statutory damages. Statutory damages are compensation that is prescribed by the law separately from money designed to compensate a person for harm they have suffered. These types of damages are designed to make violations cost more for defendants, to discourage future infractions. Under the FDCPA, a plaintiff can seek damages of up to $1,000 per lawsuit (not per violation). The FDCPA also allows for plaintiffs to seek attorney fees.

The FDCPA even allows family members of the borrower to file under the FDCPA. If harassing phone calls wind up on a third party’s phone, or the debt collectors interfere with work, many of the same provisions and damages may apply to third parties.

The FDCPA Lawsuit is Joan Grant Boyd, et al., v. Robert Co. Inc., et al., Case No. 12-422-cv, in the U.S. Court of Appeals for the Second Circuit.

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If a lender or debt collector engaged in unfair debt collection practices, you may have a legal claim and could be owed compensation for violations of the Fair Debt Collection Practices Act (FDCPA).