Friday, January 16, 2015

FYI: 6th Cir Holds "Settlement Offer" Could Be Misleading Under FDCPA, If Debt Collector Could Not or Would Not Sue on Debt

The U.S. Court of Appeals for the Sixth Circuit recently reversed a district court’s dismissal of a federal Fair Debt Collection Practices Act (“FDCPA”) lawsuit, holding that the use of the word “settlement” when making a discounted offer to pay off a debt that could not or would not be sued upon may violate the FDCPA.


The Sixth Circuit held that making a “settlement offer” without in this case advising the debtor that the statute of limitations had expired could lead a “reasonably unsophisticated” debtor to wrongly believe that the debt collector could or would sue in court to enforce the debt.


A copy of the opinion is available at:


In this FDCPA action, a debt buyer allegedly purchased the debt at a steep discount due to its being time-barred and deemed “uncollectable.”  The debt buyer then assigned the debt to the defendant debt collector to collect the debt in late 2011.


Once it had been assigned the debt, the debt collector sent correspondence to the debtor which read in pertinent part as follows:



Your past due account balance: $4,768.43

Your settlement offer: $1,668.96


Dear [Debtor],


[Investor], the current creditor of your account, has assigned the above referenced account to [Debt Collector] for collection. As of the date of this letter, you owe $4,768.43. Because of interest that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection. For further information, write the undersigned or [telephone number].


The current creditor is willing to reduce your balance by offering you a settlement. We are not obligated to renew this offer. Upon receipt and clearance of $1,668.96, your account will be satisfied and closed and a settlement letter will be issued. This offer does not affect your rights set forth below. [Investor] has purchased the above referenced account from the above referenced Previous Creditor. [Investor] has placed your account with this agency for collection.


Unless you notify this office within 30 days after receiving this notice that you dispute the validity of this debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within 30 days after receiving this notice that you dispute the validity of this debt or any portion of it, this office will obtain verification of the debt or obtain a copy of a judgment and mail you a copy of such judgment or verification. If you request of this office in writing within 30 days after receiving this notice this office will provide you with the name and address of the original creditor if different from the current creditor.



Upon receipt of this letter, the debtor filed the subject lawsuit, alleging that the letter had “falsely implied that [debt collector] held a legally enforceable obligation.”


The district court rejected the debtor’s allegations that the debt collector’s letter could violate the FDCPA, and granted the debt collector’s motion to dismiss. Thereafter, the subject appeal ensued.


As you may recall, “the [FDCPA] bans all false, deceptive or misleading debt collection practices.” 15 U.S.C. § 1692e.  Specifically, “the statute prohibits a false representation of the character, amount, or legal status of any debt.” 15 U.S.C. § 1692e(2)(A).


On Appeal, the Sixth Circuit agreed with the debt collector that “a debt remains a debt even after the statute of limitations has run on enforcing it in court”  See De Vries v. Alger, 44 N.W.2d 872, 876 (Mich. 1950). 


The Court also agreed with the debt collector that a “‘settlement offer’ with respect to a time-barred debt by itself [does not] amount to a threat of litigation,” and that “[e]ven an unsophisticated consumer could not reasonably draw such an inference.”  See Huertas v. Galaxy Asset Mgmt., 641 F.3d 28, 33 (3d Cir. 2011).


However, the Sixth Circuit did not believe that its inquiry had to end there. The Court held that the question of “whether a letter is misleading is a question of fact,” and the debtor indicated that she had evidence to support her allegations that the letter was misleading. 


The Court accepted the debtor’s theory that the defendant debt collector’s letter “could plausibly mislead a ‘reasonably unsophisticated consumer’ into thinking [the debtor’s] debt was legally enforceable in court.”  Therefore, the Court held that the debtor cleared the “hurdle to proceed from pleading to discovery” in that she had pled a “plausible theory of relief.”


The Sixth Circuit relied on a number of online and printed dictionaries and examined their definitions of the word “settlement,” given the letter had made a “settlement offer.”  Believing that the referenced dictionary definitions of “settlement” all referred to “concluding a lawsuit,” and also pointing to the letter’s lack of language advising of the consequences of making a partial payment on debt (i.e., that such a payment restarts the statute of limitations), the Court held that the letter could be found misleading in violation of the FDCPA by a jury at trial.


Notably, the Court also considered later revised letters from the same debt collector that now included language advising debtors in collection that “[t]he law limits how long you can be sued on a debt. Because of the age of your debt, [the debt collector] will not sue you for it, and [the debt collector] will not report it to any credit agency.”


Accordingly, the Sixth Circuit reversed the order dismissing the debtor’s complaint and remanded the action for further proceedings consistent with its opinion.





Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874


Admitted to practice law in Illinois





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