A cannabis retailer, and those who collect debt on their behalf, may not be governed by the Fair Debt Collection Practices Act (FDCPA), but they probably should act like it. The FDCPA is applicable when a third-party attempts to collect on a debt which obligates a consumer to pay for property or services which are primarily for personal, family, or household purposes. Given the mixed legal status of marijuana, it is questionable whether a third-party seeking to collect debts incurred for purchases of cannabis would be restricted by the FDCPA.
While the scope of the definition of a debt is broad, it does have its limits. For instance, debts incurred by a business are not subject to the FDCPA nor are business debts guaranteed by an individual. But what about a consumer debt which arises from the purchase of cannabis bought legally under state law? Is a debt collector constrained by the FDCPA? Put differently, may a debtor of cannabis sue under the FDCPA if the collector engages in false and misleading practices or fails to send a required written validation notice?
Courts have not decided whether a consumer would have an FDCPA claim where the debt arises from cannabis purchases. In other contexts, however, courts have found that federal law could not provide a remedy where cannabis was at issue. See, e.g., In re Arenas, 535 B.R. 845 (10th Cir. BAP 2015) (denying confirmation of bankruptcy plan because debtors’ cannabis business, while legal under state law, was illegal under federal law, and thus the debtors could not propose a confirmable plan in good faith). See also James v. City of Costa Mesa, 700 F.3d 394, 397 (9th Cir. 2012) (affirming decision that the “ADA does not protect against discrimination on the basis of marijuana use, even medical marijuana use supervised by a doctor in accordance with state law, unless that use is authorized by federal law”).
While a cannabis business may not be bound by the FDCPA, it would be best practice for a debt collector to still be guided by its mandates since most states have their own laws in place that are modeled after the FDCPA. Many of these state laws prohibit the same collection activities that are prohibited under the FDCPA such as engaging in false, misleading, or deceptive practices (e.g., Rosenthal Fair Debt Collection Practices Act, Cal. Civ. Code § 1788.13), engaging in harassing or abusive behavior with a consumer (e.g., N.Y. Gen. Bus. § 601.6) or disclosing the existence of the debt to unauthorized third-parties (e.g., Rhode Island Fair Debt Collection Practices Act, 19 R.I. Gen. Laws Ann. § 19-14.9-5(2)). Affirmatively, debt collectors may be required under state laws to provide a mini-Miranda warning during communications with the debtor (e.g., N.C. Gen. Stat. Ann. § 58-70-110) or provide a validation notice to the consumer (e.g., Colorado Fair Debt Collection Practices Act, C.S. § 5-16-109).
Sales on credit can reach new customers and can ultimately increase a retailer’s bottom line. Some borrowers, however, will inevitably default in repayment. Cannabis retailers and those collecting debts on their behalf should ensure they implement compliance programs that heeds the requirements under state law. The FDCPA is the model on which many state laws are based and can be a useful guide for those operating in multiple states.