Municipal Fines and the FDCPA: Doesn't Count

ACA in a NewsLink yesterday re-visited a story from mid-December regarding the status of municipal fines and the FDCPA.

The case in question is Gulley v Markoff & Kransky (Court Doc). At issue at the time was whether or not municipal fines counted as a debt as defined under the FDCPA.

Some background:

In 2008, the City of Chicago levied four separate fines against Victor Gulley for a piece of real estate that Gulley had once owned. Having no luck collecting the fines from Gulley on its own, the City of Chicago sent the account on to Markoff & Kransky for collection.

Gulley then sued Markoff & Kransky for FDCPA violations. The court document characterizes this as “Misrepresenting the total amount he owed, failing to validate the alleged debts as requested, communicating with him after being told to stop, and generally harassing him.”

Markoff & Kransky moved to dismiss the suit, claiming that under the FDCPA, Gulley was not actually a consumer with regards to municipal fines. Markoff & Kransky suggested that the fines were not debts.

The Courts agreed. “The amounts Gulley owed, the court noted, were for nonconsensual fines attributable to violations of the Chicago Municipal Code. The court reasoned that a fine is a penalty imposed for breaking the law — not the result of a consensual transaction — so, under the plain wording of the FDCPA, Gulley’s amended complaint fails to state a claim.”

Gulley tried again, alleging that the Court failed to take into consideration the fact that Markoff & Kranksy failed to validate the debt they were attempting to collect. The Court reminded Gulley that: there is no debt. What was being collected was a fine. And a fine does not activate the FDCPA.

As we mentioned yesterday, insideARM.com is in the process of analyzing the FTC’s debt collection complaint data — and this ACA story dovetails nicely with it. There is confusion among consumers over several points of fact that lead to general misinformation in the press and in the public consciousness over what constitutes a debt and what makes up a legitimate debt collection complaint.

As far as the FTC would be concerned, Gulley’s complaint would be counted as a debt collection complaint — regardless of its legitimacy. This ends up inflating the FTC’s debt collection complaints numbers, and gives tacit legitimacy to countless mainstream press articles regarding the “run amokness” of the collection industry. However, it’s very possible the numbers won’t actually bear this out, once analyzed.

Stay tuned for more from us regarding the FTC and its debt collection complaint data in the coming weeks.