• Jonathan Baner

What is consumer debt in Washington State

Governor Jay Inslee had previously issued an emergency proclamation preventing post-judgment interest during the present pandemic. We wrote about that here. You can find the most up to date proclamations on the Governor's website.

That proclamation applies to "consumer debt" only (or at least that is how it is written). It leaves open the question of "what is consumer debt?" This attempts to address it in three levels: easy, medium, and boring.

What is consumer debt (the easy answer)?

Debts that consumers incur in purchasing things or services for themselves or their family including medicine.

Most consumers will need not worry about whether their debt is a "consumer debt", and most of the time it will be obvious. Courts are attempting to guard against violations of the Governor's order with several courts issuing letters to local attorneys concerning the requirements.

What is consumer debt (a little nuance)?

Consumer debt is an obligation to repay a consumer obligation based on a transaction the consumer voluntarily entered into for the purchase of a good or service primarily used for personal, family, or household purposes including medical goods or services.

Examples include credit cards, auto loans, doctor bills, dental bills, retail installment contracts, etc.

What is consumer debt (excessive nuance)?

Consumer debt is defined by RCW 6.01.060(2) as:

any 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. Consumer debt includes medical debt.

Washington State Courts have not had opportunity to provide any additional meaning to RCW 6.01.060(2). The definition was added by Substitute House Bill 1602 with an effective date of July 28, 2019.

The definition in RCW 6.01.060 (with the exception of the addition of medical debt” is identical to the Fair Debt Collection Protection Act (15 U.S.C. 1692) (“FDCPA”) definition of “debt” which applies only to “consumer[s]” under the FDCPA. See 15 U.S.C. 1692a(5). See also Bloom v. I.C. Sys., Inc., 972 F.2d 1067, 1068 (9th Cir.1992) (holding that the FDCPA applies only to "consumer debts" incurred "primarily for personal, family, or household purposes").

Looking to the FDCPA definition provides a meaningful source of persuasive authority. Under the FDCPA the term has been found to mean a “type of transaction which creates a debt under the FDCPA is one in which a consumer is offered or extended the right to acquire money, property, insurance, or services which are primarily for household expenses and to defer payment.” Mabe v. G.C. Services Ltd. Partnership, 32 F.3d 86, 88 (4th Cir. 1994) (internal citations omitted).

Child support has been found excluded because such an obligation was “not incurred to receive consumer goods or services.” Id. A delinquent per capita tax is not a “debt” under the FDCPA because “at a minimum, the statute contemplates that the debt has arisen as a result of the rendition of a service or purchase of property or other item of value.” Staub v. Harris, 626 F.2d 275, 278 (3d Cir. 1980). The term doesn’t apply to potential tort claims for the "illegal reception of HBO signals" because those tort claims are not "debt" because the source of the obligation was an "asserted tort liability" rather than a consensual transaction. Zimmerman v. HBO Affiliate Group, 834 F.2d 1163, 1165-68 (3d Cir. 1987). The payment of tolls is not a “debt” because the benefit received from payment of tolls is not a private benefit of a “personal, family, or household service or good, but [is a] .. very public benefit.” St. Pierre v. Retrieval-Masters Creditors Bureau, Inc. 898 F. 3d 351, 362 (3rd Cir. 2018)

The definition of “debt” involves whether or not there is a “transaction” that created the obligation being considered. Property taxes are not a “debt” under the FDCPA because property taxes arise “not from the purchase of property but from the fact of ownership.” Pollice v. National Tax Funding, L.P., 225 F.3d 379, 401-02 (3d Cir. 2000). In other words, the property tax was not part of a transaction. A contrary result was reached for utilities. Regarding water and sewer services, a consumer’s request from the government to provide those services “transformed the relationship between the government and homeowner into a ‘transaction’ and the flow of the water directly into the household for personal consumption by the consumer rendered that transaction ‘primarily for personal, family, or household purposes.” St. Pierre v. Retrieval-Masters Creditors Bureau, Inc. 898 F. 3d 351, 360 (3rd Cir. 2018) (citing Pollice). The third circuit have emphasized the voluntary or “consensual nature of … transactions distinguish” whether debts are within the meaning of the FDCPA or not.

The federal courts have devised a “three-part test to evaluate whether an obligation constitutes ‘debt’ under the FDCPA.” St. Pierre v. Retrieval-Masters Creditors Bureau, Inc. 898 F. 3d at 360. First, “consider whether the underlying obligation aris[es] out of a transaction -- that is, a consensual exchange involving an affirmative request and the rendition of a service or purchase of property or other item of value such as a contract— or whether, instead, it arises by virtue of a legal status— that is, an involuntary obligation attendant to the fact of having a specific legal status such as that of a property owner, legal resident, … , or tortfeasor or other type of offender under criminal or civil law.” Id. (internal citations omitted).

“Second, if we conclude that the obligation arises out of a transaction, we next identify what money, property, insurance, or services” “are the subject of the transaction . . . i.e., what it is that is being rendered in exchange for the monetary payment. Id. at 361 (internal citations omitted). Third, “we consider the characteristics of that money, property, insurance, or services to ascertain whether they are primarily for personal, family, or household purposes. Id. (internal citations omitted).

The three-part test is inclusive. If any portion of the test is not met, then the debt is not a "consumer debt." The majority of obligations that are borderline will fail the first part of the test.

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