Financial Services Law Developments: FYI: 7th Cir Rules Stating Intent Not to Sue in Letter Collecting "Time-Barred" Debt Violates FDCPA Without Proper Disclosures

Friday, April 14, 2017

FYI: 7th Cir Rules Stating Intent Not to Sue in Letter Collecting "Time-Barred" Debt Violates FDCPA Without Proper Disclosures

The U.S. Court of Appeals for the Seventh Circuit recently held that a debt buying company's letter to collect a debt subject to the defense of an expired limitations period violated the federal Fair Debt Collection Practices Act because it failed to disclose that 1) a payment or promise can revive the limitations period; and, 2) the law limits or prohibits the debt collector from suing to collect the debt.

The Court reached this decision even though the letter stated: "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."

A copy of the opinion is available at: Link to Opinion

Affirming the trial court's ruling in favor of the plaintiff consumer, the Seventh Circuit found the letter to be deceptive because it did not inform the consumer that a payment (or promise to pay) may restart the limitations period.

As a result, the Court reasoned, had the letter's recipient made a payment or promise to pay, he could have been sued to collect the debt, putting the debtor "in a much worse legal position than he would have been in before taking the step."

Because the letter did not disclose the "significant risk of losing the protection of the statute of limitations," the letter was "deceptive as a matter of law."

The Court also found that the letter's statement, "we will not sue you," was deceptive because it gave "the impression" that the debt collector chose not to sue, and not that it is prohibited by law from doing so.

The Seventh Circuit pointed out that the debt collector's verbiage was taken from a "2012 consent decree." Although the decision does not cite to the consent decree, it is believed the court was referring to the 2012 consent decree made between the Federal Trade Commission and Asset Acceptance, LLC.

Under that consent decree, letters sent by Asset Acceptance to collect debt subject to an expired limitations period were required to state: "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 the letter at issue in this case omitted the first sentence of the disclosure. The Court determined that the omission created a "deliberate ambiguity," concealing from the debtor that law prohibited the collector "from suing to collect this debt or even from threatening to do so."

Ralph T. Wutscher
Maurice Wutscher LLP
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The Editor's Bio

Ralph T. Wutscher
Maurice Wutscher LLP
20 N. Clark Street, 33rd Floor
Chicago, Illinois 60602
Direct: (312) 493-0874
RWutscher@MauriceWutscher.com
https://www.MauriceWutscher.com/

Ralph Wutscher's practice focuses primarily on representing depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, distressed asset buyers and sellers, loss mitigation companies, automobile and other personal property secured lenders and finance companies, credit card and other unsecured lenders, and other consumer financial services providers. He represents the consumer lending industry as a litigator, and as regulatory compliance counsel.

Ralph has substantial experience in defending private consumer finance lawsuits, including cases ranging from large interstate putative class actions to localized single-asset cases, as well as in responding to regulatory investigations and other governmental proceedings. His litigation successes include not only victories at the trial court level, but also on appeal, and in various jurisdictions. He has successfully defended numerous putative class actions asserting violations of a wide range of federal and state consumer protection statutes. He is frequently consulted to assist other law firms in developing or improving litigation strategies in cases filed around the country.

Ralph also has substantial experience in counseling clients regarding their compliance with federal laws, and with state and local laws primarily of the Midwestern United States. For example, he regularly provides assistance in connection with portfolio or program audits, consumer lending disclosure issues, the design and implementation of marketing and advertising campaigns, licensing and reporting issues, compliance with usury laws and other limitations on pricing, compliance with state and local “predatory lending” laws, drafting or obtaining opinion letters on a single- or multi-state basis, interstate branching and loan production office licensing, evaluations and modifications of new or existing products and procedures, debt collection and servicing practices, proper methods of responding to consumer inquiries and furnishing consumer information, as well as proposed or existing arrangements with settlement service providers and other vendors, and the implementation of procedural or other operational changes following developments in the law.

Ralph is a member of the Governing Committee of the Conference on Consumer Finance Law. He is also the immediate past Chair of the Preemption and Federalism Subcommittee for the ABA's Consumer Financial Services Committee. He served on the Law Committee for the former National Home Equity Mortgage Association, and completed two terms as Co-Chair of the Consumer Credit Committee of the Chicago Bar Association.

Ralph received his Juris Doctor from the University of Illinois College of Law, and his undergraduate degree from the University of California at Los Angeles (UCLA). He is a member of the national Mortgage Bankers Association, the American Bankers Association, the Conference on Consumer Finance Law, DBA International, the ACA International Members Attorney Program, as well as the American and Chicago Bar Associations.

Ralph is admitted to practice in Illinois, as well as in the United States Court of Appeals for the Seventh Circuit, the United States District Courts for the Northern and Southern Districts of Illinois, and the United States District Court for the Eastern District of Wisconsin, and has been admitted pro hac vice in various jurisdictions around the country.