Some good news for debt collectors recently came out of the Sixth Circuit Court of Appeals. In Sparks v. EquityExperts.org, LLC, the Sixth Circuit affirmed summary judgment for EquityExperts.org, LLC (“Equity Experts”), rejecting the consumers’ allegations that Equity Experts violated the Fair Debt Collection Practices Act by collecting its fees directly from the consumers without authorization. The Court held the agreement between Equity Experts and the original creditor to collect the debt expressly authorized the collection of additional fees from the borrowers, thus there was no FDCPA violation.
The case involved a Declaration of Covenants between the Sparkses and their homeowners’ association (“Association”), which allows for the collection of costs, interest, and reasonable attorneys’ fees to be charged to the property owner (the Sparkses) upon the start of any collection efforts. Sometime in 2016, the Sparkses fell behind on their payments to the Association, with a balance due of $220.00 as of December 12, 2016. Around this time, the Association sent the account to Equity Experts for collection, pursuant to a previous agreement between the two that engaged Equity Experts to act as the Association’s exclusive collection agent. This agreement also set out a schedule of fees for Equity Experts’ collection services, and it authorized Equity Experts to collect those fees directly from delinquent homeowners. The letters Equity Experts sent the Sparkses included the $220.00 balance, along with additional fees based on the agreement with the Association, eventually totaling more than $1,000.00.
The Sparkses filed a complaint against Equity Experts alleging violations of the FDCPA, arguing on summary judgment that Equity Experts violated the FDCPA by collecting its fees directly from the Sparkses without authorization. The district court granted summary judgment in favor of Equity Experts, as the agreement between the Association and Equity Experts allowed fees to be collectible directly from the homeowner.
On appeal, the Sparkses challenged the district court’s judgment in favor of Equity Experts, arguing that Equity Experts violated the FDCPA by falsely representing the character, amount, or legal status of the Association debt by adding the costs of collection and by collecting an amount that was not expressly authorized by the agreement creating the debt or permitted by law. The Sixth Circuit narrowed its focus to whether the agreement between the Association and Equity Experts expressly authorized the collection of the cost-of-collection fees.
In its opinion, the Court of Appeals found that the Declaration between the Association and the Sparkses expressly authorized the collection of the Association’s costs, which was comprised of Equity Experts’ fees. The Declaration provided that each assessment, together with interest, costs, and reasonable attorneys’ fees, shall be a charge on the land and shall also be the personal obligation of the property owner. The Court further found that, per the agreement between the Association and Equity Experts, the costs of collection were Equity Experts’ fees, as the agreement contained a set schedule of collection activities and associated fees, and that Equity Experts was authorized to charge those collection costs directly to the delinquent homeowner. In other words, the Declaration expressly authorized the Association to collect its costs, and Equity Experts’ fees made up the Association’s costs, and thus the Declaration expressly authorized the collection of Equity Experts’ fees. Based on this conclusion, the Court affirmed summary judgment in favor of Equity Experts.
This opinion shows the importance of agreements concerning collection costs under the FDCPA, as language concerning the authorization of collection costs being charged directly to the borrower can help shield entities from liability under the FDCPA.