Time-Barred Debt Collection Can Violate FDCPA According to Joint CFPB-FTC Brief

On March 7th, 2014, the Consumer Financial Protection Bureau (“CFPB”) and Federal Trade Commission (“FTC”) filed a joint amicus brief with the Sixth Court of Appeals arguing that a settlement offer on an out-of-state account can mislead a consumer thus violating the Fair Debt Collection Practices Act (“FDCPA”).  The brief was filed in a class action case Buchanan v. Northland Group, which has been dismissed by a district court and is currently on appeal to the Sixth Circuit Court.

In Buchanan, the debt collector sent plaintiff a dunning letter that offered Buchanan an opportunity to settle the debt which was beyond the statute of limitations.  Plaintiff filed a class-action complaint accusing Northland Group of violating the FDCPA by using “any false, deceptive, or misleading representation or means in connection with the collection of any debt” in its letter.  The Western District of Michigan ruled that, the letter could not have violated the FDCPA as a matter of law, and dismissed the claim.

In their brief, the CFPB and FTC contend that court’s decision should be reversed because the statements in their dunning letter to the consumer could “deceive or mislead ‘the least sophisticated consumer’ whom the FDCPA was enacted to protect”.  More specifically, Buchanan could be misled into believing that she could be sued for the debt by the wording of a dunning letter which stated that her balance would continue to accrue interest.   The letter also included a warning that the company was not under obligation to renew their settlement offer.  The CFPB and FTC also bring to attention of the court that the dunning letter did not inform the consumer that the statute of limitation on the debt addressed in the letter had expired, arguing that “omissions may also deceive” the consumer. 

The CFPB and FTC filed a similar joint brief in 2013 in Delgado v. Capital Management Services, LP, et al.  In Delgado, the argument is also concerning a settlement offer on a time-barred debt made in a dunning letter.  On March 11, 2014, the Seventh Circuit sided with the CFPB and FTC when it found the defendant-debt collector’s dunning letter potentially misleading.  Specifically, the Seventh state at the record showed that the dunning letter did not inform the plaintiff that debt was subject to statute of limitations defense, and plaintiff alleged that defendant’s use of offer to “settle” the debt gave her impression that underlying debt was legally enforceable. 

Briefs filed in Buchanan and Delgado show that both the CFPB and FTC are concerned about the communications with consumers regarding time-barred debt.  The CFPB also discusses questions concerning time-barred debt in Part IV of its Advanced Notice of Proposed Rulemaking (“ANPR”).  The CFPB expresses its interest in comments about the needs for rules related to collection of time-barred debt.  The CFPB states that “there are no requirements set forth in the FDCPA or the Dodd-Frank Act regarding time-barred debts” and considers creating uniform notices that would be used by collectors to inform consumers regarding their rights in respect to time-barred debt.

We will keep you inform of future developments in this contentious area of the law.  If you have questions regarding these cases or issues regarding the collection of time barred debtsfeel free to  contact Joseph Messer at (312) 334-3440 or at jmesser@messerstrickler.com.