Federal court: the FDCPA does not reach maintenance fees on an investment condo
Federal court: the FDCPA does not reach maintenance fees on an investment condo
2026-09-10 · Hawaii · Courts
Owners who alleged an association law firm charged them compounding attorneys’ fees to collect on its own earlier fees lost, on a threshold question: their unit was an investment, so the federal debt-collection statute never applied.1
Tsang and Jefferson v. Porter McGuire Kiakona, LLP, Civil No. 23-00333 MWJS-KJM, U.S. District Court for the District of Hawaii, order granting summary judgment filed March 13, 2025.
The allegation, and why it was never reached
The plaintiffs, a New York couple owning a Waikiki condominium unit, alleged the firm “employed abusive debt collection practices” — most pointedly by “charg[ing] Plaintiffs for compounding attorneys’ fees to collect on its own earlier fees — even after Plaintiffs had paid off all the underlying maintenance and cable fees.” They sued under the Fair Debt Collection Practices Act and for intentional infliction of emotional distress.
The court never decided whether fee-on-fee billing is abusive. It decided the statute does not apply.
The test, and how it came out
“The FDCPA ‘applies only to consumer — as opposed to commercial — debt.’” Examining “the transaction as a whole” and “the debtor’s purpose as of the time the debt was incurred,” the court found the evidence one-sided: one plaintiff had found the unit during a search for rental properties, and the unit was in fact rented out.
Even crediting the co-owner’s testimony that she thought they would move in, “no reasonable juror could find that the primary purpose of the purchase was a personal one.” Therefore: “The debt is, as a matter of law, not consumer debt protected by the FDCPA.”
The emotional-distress claim failed on multiple elements; the court granted the firm fees for defending one plaintiff’s “frivolous” IIED claim and ordered a show-cause process on sanctions.
Why this matters more in Hawaii than elsewhere
A very large share of Hawaii condominium units — particularly in Waikiki and the resort markets — are investment property. For those accounts, this decision removes the FDCPA from the table entirely, and with it the statutory damages, fee-shifting and validation-notice machinery that owner-side counsel normally builds a collection challenge on.
The reach is bounded by the purpose test, which is fixed at acquisition. A unit bought as a residence and later rented out is still, on this reasoning, consumer debt. A unit bought as a rental and later occupied by the owner is not. That is an awkward rule to apply years later, and the evidence that decides it is the buyer’s own contemporaneous statements and search history.
What is left for an owner on an investment account
Three state-law routes, and they are not nothing:
Reasonableness review under HRS § 514B-157. The association is entitled to “[a]ll costs and expenses, including reasonable attorneys’ fees” for collecting delinquent assessments — but only if the claims are substantiated, and only to the extent the fees are reasonable.
The itemisation and mediation regime in § 514B-146(d)–(g). An owner served with a demand may require an itemised written statement separating common expenses from “any penalty or fine, late fee, lien filing fee, and any other charge… that is not imposed on all unit owners as a common expense” from attorneys’ fees and costs. For everything other than common expense assessments, the owner has thirty days from that statement to demand mediation, and the association is then barred from collecting the disputed charges until it has mediated.
The bar on foreclosing a fees-only lien. Section 514B-146(a) prohibits nonjudicial power-of-sale foreclosure of a lien “that arises solely from fines, penalties, legal fees, or late fees” — such a foreclosure must be filed in court.
And the rule that frames all of it: § 514B-146(e), “No unit owner shall withhold any common expense assessment claimed by the association.” The dispute rights above run to fees and fines, not to the maintenance fee itself, and an owner who stops paying assessments to make a point forfeits the mediation and arbitration routes that § 514B-146(f) conditions on being paid in full and staying current.
For association collection counsel
Meaningful protection on investment accounts — and no protection on owner-occupied ones. The practical implication is that the same collection letter template carries different legal exposure depending on a fact about the debtor that the firm may not know. Establishing purpose at acquisition early is worth doing on any account where an FDCPA claim is foreseeable.
What the case does not bless
Fee-on-fee billing. The court expressly never reached it. An association or firm reading this decision as approval of compounding collection charges is reading something that is not there, and the state-law reasonableness review above is where that question actually lives.
What to watch
Whether any Hawaii state decision takes up compounding collection fees under § 514B-157, and whether a 2027 bill revives the 25% fee cap that died in the 2026 session.
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