A recent ruling from the U.S. District Court for the Northern District of Illinois calls into question whether debt collectors may rely on a widely used FDCPA disclosure approved by both the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) for collecting debt that may be subject to an expired limitations period.
A copy of the opinion is available at: Link to Opinion
As you may recall, the FTC used to have enforcement authority over the federal Fair Debt Collection Practices Act (FDCPA). In 2012 the Federal Trade Commission and Asset Acceptance, LLC entered into a consent decree to resolve an enforcement action that included allegations that Asset's debt collection activities violated the FDCPA.
The consent decree provided that when collecting "time-barred" debt not subject to credit reporting, Asset would provide the consumer with the following disclosure:
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, and we will not report it to any credit reporting agency.
In 2015, the FTC adopted the same language in a consent decree against Encore Capital Group.
Moreover, in July of 2016, the CFPB opined that a debt collector should "inform the consumer that, because of the age of the debt, the debt collector cannot sue to recover it," but did not require anything more. In fact, the CFPB expressly declined to require any additional warning that partial payment might revive a time-barred debt.
In this action, a debt collection letter contained the same disclosure. The plaintiff's complaint alleged that the disclosure itself is misleading because it gives the impression that the debt collector chose not to sue him instead of stating that it was barred from filing a lawsuit.
The defendant debt collector filed a motion to dismiss, which the Court denied.
The Court noted that debt collectors do not violate the FDCPA simply by seeking repayment of time-barred debts. McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1020 (7th Cir. 2014). However, debt collectors still might violate the FDCPA if they use any "false, deceptive, or misleading representation or means" to collect on a time-barred debt. 15 U.S.C § 1692e.
The Court explained that "[t]his includes making false representations about the character or legal status of the debt, such as its enforceability, 15 U.S.C. § 1692e(2); McMahon, 744 F.3d at 1020-22 (finding letters offering to "settle" time-barred debts could violate section 1692e(2) by leading consumers to believe debts were legally enforceable), or using false representations or deceptive means generally to collect or attempt to collect the debt, 15 U.S.C. § 1692e(10)."
Here, despite that fact that the disclosure at issue was created and agreed to by the FTC, the Court held that a debt collector's use of the disclosure has "the potential to mislead the unsophisticated consumer" into believing that the debt was "legally enforceable."
According to the Court, "[b]ecause the language is taken from consent decrees that the FTC and CFPB have entered into with other debt collectors and is not the product of the formal rule making process, it does not warrant Chevron-style deference." Rather, the Court held that "agency approval serves only as evidence that the fact finder may consider—at a later time—to determine whether the defendants' letter is misleading to the unsophisticated consumer."
The plaintiff is permitted to move forward with his case and it remains to be seen whether the use of the disclosure is ultimately decided to be an FDCPA violation. But for most debt collectors, just the possibility that such a suit may be maintained at all is an unacceptable result.
Ralph T. Wutscher
Maurice Wutscher LLP
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