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City-Sanctioned Fines Not 'Debts' Under FDCPA

By Robyn Hagan Cain | Last updated on

Is a debt-collection law firm retained to collect fines for a city obligated to comply with the Fair Debt Collection Practices Act (FDCPA)?

Apparently not.

The Seventh Circuit Court of Appeals ruled this week that city-levied fines are not debts under the FDCPA.

Victor Gulley sued Markoff & Krasny, a law firm enlisted to collect unpaid fines for the City of Chicago, claiming that the firm violated the FDCPA by 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 & Krasny filed a 12(b)(6) motion to dismiss the case, arguing that Gulley was not a "consumer" and the unpaid fines the firm was trying to collect were not "debts" under the FDCPA. The district court granted the motion, and the Seventh Circuit Court of Appeals affirmed.

While the question of whether fines are "debts" frequently pops up in district courts, this Seventh Circuit Court of Appeals decision is the first precedential appellate decision to examine the issue.

District courts, for what it's worth, uniformly agree that a fine does not stem from a consensual transaction, and thus is not a debt under the FDCPA.

The Seventh Circuit Court of Appeals agreed with the district courts' jurisprudence on civil fines -- which addressed everything from traffic citations to overdue library book penalties -- and concluded that the fines levied against Gulley could not reasonably be classified as "debts" arising from consensual consumer transactions for goods and services.

Under the FDCPA, a debt can arise only from a "transaction in which money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes." The amounts Gulley owed, by contrast, were for nonconsensual fines attributable to violations of the Chicago Municipal Code.

The Seventh Circuit reasoned that a fine is a penalty imposed for breaking the law -- rather than the result of a consensual transaction -- so Gulley failed to state a claim under the plan wording of the FDCPA.

If you have a client who wants to sue a municipal-fine debt collector rather than paying the fine, inform your client that fines are not debts under the FDCPA.

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