Mr. Joel H. Kaufman
Dear Mr. Kaufman:
This is in response to your letter of April 28, 1988, to John LeFevre in which you request a staff advisory opinion on several issues relating to the Fair Debt Collection Practices Act ("FDCPA").
You describe the following situation. Your firm represents a management company that manages a number of apartment complexes and attempts to collect debts only for these properties (I assume the debts being collected are in default at the time the management company obtains them). The apartment complexes are owned by various real estate limited partnerships. The sole shareholder of the management company is also the general partner of the various limited partnerships. The sole task of some of the people employed by the management company is to collect debts on these properties. You ask whether, and to what extent, the management company and the various limited partnerships may be covered by the FDCPA.
Section 803(6) of the FDCPA defines "debt collector" as "any person ... who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." On the basis of that definition, the management company is a "debt collector" since it "regularly" collects debts for the limited partnerships. Further, the Staff Commentary to the Act specifically provides that a management firm that regularly collects overdue rents on behalf of real estate owners meets the statutory definition of "debt collector" because it "regularly collects ... debts owed or due to another." See 51 Fed. Reg. 8022, March 7, 1986 (copy enclosed).
Section 803(6), however, also sets out several specific exceptions to this general principle. Under § 803(6)(B), the term "debt collector" does not include:
The statute sets out a two-pronged test under S 803(6)(B) and both conditions must be met in order to invoke the statutory exemption.
The first test involves the corporate or ownership links between the two entities. You state that the sole shareholder of the management company is also the general partner of the various limited real estate partnerships. Your letter does not indicate, however, the extent of the ownership or equity stake of the general partner in the limited real estate partnerships. Although neither the statute nor its legislative history defines the term "common ownership", we consider it likely that Congress contemplated something more than a de minimis ownership interest. Thus, it appears that the relationship of the sole shareholder to the real estate partnerships would satisfy the common ownership requirement of the exemption only if the shareholder enjoys a significant ownership or equity interest in the partnerships.
The second part of the test requires that the principal business of the management company be something other than collecting debts. You indicate that the management company collects debts only for the properties it manages on behalf of the limited partnerships. This is consistent with the exemption requirement. Further, you indicate that, although the company is primarily involved in management of the apartment complexes, the principal task of some of its employees is debt collection. We believe that the management company meets the test for exemption under the second prong of the test enumerated in 803(6)(B), despite the fact that some of the employees of the management company engage only in debt collection activities. The important fact is that debt collection is not the principal business of the company as a whole.
I should also point out that if the management company is collecting accounts not in default at the time they were obtained, its collection activities would also be exempt under section 803(6)(F) of the Act.(1)
The opinions expressed in this letter are those of the Commission's staff and as such are not binding on the Commission or any court.
Arthur B. Levin
1. The legislative history indicates that the Act does not apply, e.g., to "mortgage servicing companies and others who service outstanding debts for others so long as the debts were not in default when taken for servicing. S. Rpt. No. 95-382, 95th Cong., 1st Sess. 3, reprinted in 1977 Code Cong. & Ad. News, 1695, 1697.