On March 29, 2017, the Seventh Circuit Court of Appeals in Pantoja v. Portfolio Recovery Associates, LLC (case number 15‐1567) affirmed a ruling that debt collector Portfolio Recovery Associates had violated the Fair Debt Collection Practices Act in its efforts to collect an old consumer debt, finding the letter it sent to the debtor failed to clearly communicate that the debt was time barred (i.e., past the statute of limitations).
In this precedential ruling, the three-judge appellate panel found that the lower court was correct to grant summary judgment in favor of Manuel Pantoja, who sued Portfolio Recovery Associates after receiving a collection letter seeking payment on a 20-year-old debt which Portfolio Recovery had purchased from Capital One. The FDCPA prohibits collectors of consumer debts from using any “false, deceptive, or misleading representation to collect debts,” including those like the one incurred by Pantoja, which had a statute of limitations for recovery that had long since expired.
In January of 2015 an Illinois district judge ruled that the letter sent by the debt collector was deceptive or misleading because it did not tell Pantoja that the company could not sue on the time‐barred debt, and it didn’t inform the consumer that if he made or agreed to make a partial payment on the debt he could restart the clock on the expired statute of limitations. The Seventh Circuit panel agreed.
“This letter is an example of careful and deliberate ambiguity,” the panel ruled. “The carefully crafted language, chosen to obscure from the debtor that the law prohibits the collector from suing to collect this debt or even from threatening to do so, is the sort of misleading tactic the FDCPA prohibits.” The only reason to use such “carefully ambiguous language,” the panel continued, “is the expectation that at least some unsophisticated debtors will misunderstand and will choose to pay on the ancient, time‐barred debts because they fear the consequences of not doing so.”
The panel also faulted Portfolio Recovery for not making it clear to Pantoja that if he agreed to settle the debt by paying a portion of it off he would lose the protection of the statute of limitations. "We assume that a few consumer debtors, even if they know the debt can never be collected in a lawsuit, might choose to pay an asserted debt based on a sense of moral obligation," the panel stated. "But we believe the FDCPA prohibits a debt collector from luring debtors away from the shelter of the statute of limitations without providing an unambiguous warning that an unsophisticated consumer would understand."
Although the Seventh Circuit did not prescribe exact language for debt collectors to use when writing such letters, the panel did advise that the language should be "clear, accessible, and unambiguous to the unsophisticated consumer," a standard that it concluded that Portfolio Recovery had not met.
In his lawsuit, Pantoja alleged that he had applied and was approved for a credit card from Capital One in 1993, but he never activated the account or used it for any purpose. Despite the lack of action, Capital One still assessed annual fees, late fees and activation fees against Pantoja’s account, which Pantoja never knew about and never paid.
Portfolio Recovery Associates purchased the debt from Capital One and unsuccessfully attempted in 1998 to collect the debt by phone. Portfolio Recovery renewed these efforts in April 2013, when it sent a collection letter to Pantoja claiming he owed $1,903.15. The letter, which offered several partial payment options that would settle the debt "for good," included the disclosure that "because of the age of your debt, we will not sue you for it and we will not report it to any credit reporting agency."
The debt collector claimed that this disclosure was enough to put Pantoja on notice that his debt had expired and he would not be brought to court. But the Seventh Circuit ruled that the language was deceptive and misleading because "it gives the impression that Portfolio Recovery has only chosen not to sue, not that it is legally barred from doing so." The panel noted that the "carefully worded sentence" appeared to have come from a 2012 consent decree between the Federal Trade Commission and debt collector LVNV Funding. Under this decree Portfolio Recovery was required to say “The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it.” But while the second sentence was included in Portfolio Recovery's letter, the panel pointed out that the first wasn't, making its disclosure "vaguer" and ultimately misleading.
The panel ruled: "The reader is left to wonder whether Portfolio has chosen to go easy on this old debt out of the goodness of its heart, or perhaps because it might be difficult to prove the debt, or perhaps for some other reason."
This decision creates new law for the states covered by the 7th Circuit (i.e., Illinois, Indiana and Wisconsin) and makes clear how important it is for collectors to have a qualified attorney review their collection letters for compliance before putting them to use. For further information or have your collection letters reviewed contact Joseph Messer of Messer Strickler, Ltd. at (312) 334-3440 or email@example.com