Consumer Finance Litigation

The U.S. District Court for the Eastern District of New York recently held that tax liens, which included municipal water and sewer charges, were not debts under the FDCPA. Additionally, the court found that efforts to foreclose tax liens constituted the enforcement of a security interest, which was not subject to the FDCPA.

In Boyd v. J.E. Robert Co., No. 05-CV-2455, 2013 WL 5436969 (E.D.N.Y. Sept. 27, 2013), plaintiffs filed a putative class action alleging violations of the FDCPA. After the District Court granted defendants' motions for summary judgment, plaintiffs filed a motion for reconsideration. In ruling on the motion for reconsideration, the court first addressed plaintiffs' argument that the tax liens were debts as defined by the FDCPA. Plaintiffs relied on Beggs v. Rossi, 145 F.3d 511 (2d Cir. 1998), for the proposition that a debt that arises as a result of the rendition of a service constitutes a debt under the FDCPA. Plaintiffs argued that, pursuant to Beggs, a debt need not arise from a consensual transaction for the purposes of the FDCPA. The court found that plaintiffs misconstrued the Beggs holding, finding that Beggs required, at a minimum, that the debt arise from the rendition of a service or purchase of property under the FDCPA. Accordingly, the Beggs holding was consistent with the court's determination that the definition of a debt "contemplates a consensual transaction, where parties 'negotiate or contract' for consumer services or goods." Because plaintiffs were required to pay water and sewer charges, the court found that they did not arise from a consensual transaction and, thus, did not constitute a debt. The court also found that plaintiffs failed to address the court's finding that municipal water and sewer charges were more analogous to taxes -- which are not subject to the FDCPA -- than consumer debt. Accordingly, the court held that the tax liens were not debts under the FDCPA.

The court next addressed plaintiffs' argument that efforts to foreclose the tax liens constituted debt collection under the FDCPA. The court determined that the foreclosure action related to the tax liens did not seek a monetary judgment against plaintiffs and, instead, sought to enforce a security interest, which removed it from the ambit of the FDCPA. Challenging this holding, plaintiffs relied on a recent CFPB amicus brief and opinions from other circuits finding that foreclosure constitutes debt collection under the FDCPA. Declining to follow the "misguided reasoning" from other circuits, including the recent opinion from the Sixth Circuit in Glazer v. Chase Home Finance, LLC, 704 F.3d 453 (6th Cir. 2013), the court held that foreclosure activities were not debt collection. Accordingly, the court denied plaintiffs' motion for reconsideration.

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