Recent Ruling Says City Must Face FDCPA Violation Charges

Several recent court rulings have forced the City of Columbus Ohio to answer charges that its collection arm violated the FDCPA, setting the stage for a reversal of court rulings that have made such units exempt from the federal law.

In October, a district court judge denied the city’s motion for summary judgment in a case involving city employees collecting on behalf of a payday loan company. The ruling in Passa vs. the City of Columbus indicates that municipalities, in certain cases, may face lawsuits that claim they are bound by the rules of the FDCPA.

Briefly, the case concerns Tracy Passa, who defaulted on a loan to a payday loan firm, Check$mart of Zanesville, that Passa had secured with a check. The check bounced and Check$mart contacted Columbus under the auspices of its Check Resolution Program, a service designed to help local merchants recover bad checks. When city employees sent a letter to Passa informing her of a hearing date, she claimed a violation of the FDCPA. Columbus asked for a summary judgment dismissing her claim.

In March, the U.S. District Court for the Southern District of Ohio, Eastern Division denied that request, ruling that “there exist genuine issues of material fact regarding the City’s status as a debt collector under the FDCPA.” On October 24, the court again denied Columbus’ motion for summary judgment.

In the October case, Columbus argued that its employees and the city were exempt from the FDCPA. But the court disagreed, saying that a government entity conducting collection activities on behalf of a private creditor would have to stand civil trial for violations of the FDCPA.

Typically, governments are exempt from the provisions of the FDCPA.

Experts believe that the Ohio rulings hinge on the fact that city employees were collecting on behalf of a private company, and not on behalf of the city itself. Still, municipalities that run check resolution programs are probably taking hard looks at the services as the case proceeds.

The case is still in trial, although a trial date has not been set.