What We Know

Money Owed as a Result of Theft is not a Debt for FDCPA Purposes

August 27, 2015 | by Caren D. Enloe

The Second Circuit recently joined other circuits in confirming that money owed as a result of theft or tort claims does not constitute a debt within the meaning of the FDCPA. In Beauvoir v. Israel, C.A. 14-3794 (2d Cir. July 21, 2015) the consumers filed a putative class action against an attorney who was retained by a natural gas company to collect for the consumption of unmetered gas to the consumers’ residence. The underlying obligation arose from allegations that the consumers “diverted and consumed unmetered natural gas…by means of unlawfully tampering with… [the] gas meter to impede, impair, obstruct and prevent the…meter from performing its recording function.” The demand letter sent by the attorney did not contain the debt validation language required by 15 U.S.C. §1692g. The attorney moved to dismiss the claim because the collection action he initiated concerned the theft of natural gas and thus, was not a debt as the term is defined by the FDCPA.

In affirming the district court’s dismissal of the FDCPA suit, the court focused on the asserted basis for the obligation to pay. Under the FDCPA, a “debt” is defined as an “obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.” 15 U.S.C. §1692a. Because the money owed in this case arose as a result of theft and not out of a transaction or as a result of the rendition of a voluntary service or transaction, the court determined that it was not a debt covered by the FDCPA. At a minimum, the court concluded that the FDCPA contemplates that the debt arises as a result of the rendition of a service or purchase of property or another item of value.

For those keeping count, a majority of the circuits have held that liability derived from theft or torts does not constitute a debt under the FDCPA.

See Fleming v. Pickard, 581 F.3d 922, 926 (2009); Hawthorne v. Mac Adjustment, Inc., 140 F. 3d 1367 (11th Cir. 1998); Bass v. Stolper, Koritzinsky, Brewster & Neider, S.C., 111 F.3d 1322 (7th Cir. 1997); Zimmerman v. HBO Affiliate Grp., 834 F.2d 1163 (3d Cir. 1987).

Caren Enloe leads Smith Debnam’ s consumer financial services litigation and compliance group. In her practice, she defends consumer financial service providers and members of the collection industry in state and federal court, as well as in regulatory matters involving a variety of consumer protection laws.  Caren also advises fintech companies, law firms, and collection agencies regarding an array of consumer finance issues. An active writer and speaker, Caren currently serves as chair of the Debt Collection Practices and Bankruptcy subcommittee for the American Bar Association’s Consumer Financial Services Committee. She is also a member of the Defense Bar for the National Creditors Bar Association, the North Carolina State Chair for ACA International’s Member Attorney Program and a member of the Bank Counsel Committee of the North Carolina Bankers Association. Most recently, she was elected to the Governing Committee for the Conference on Consumer Finance Law. In 2018, Caren was named one of the “20 Most Powerful Women in Collections” by Collection Advisor, a national trade publication. Caren oversees a blog titled: Consumer Financial Services Litigation and Compliance dedicated to consumer financial services and has been published in a number of publications including the Journal of Taxation and Regulation of Financial Institutions, California State Bar Business Law News, Banking and Financial Services Policy Report and Carolina Banker.  ...LEARN MORE

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