The U.S. Court of Appeals for the Ninth Circuit recently held that a collection letter offering payment options on a time-barred debt and listing "benefits" of paying the debt was not deceptive or misleading under the federal Fair Debt Collection Practices Act.
Meanwhile, the CFPB is expected to take up the issue of time-barred debt disclosures early next year.
The Ninth Circuit's opinion is available at: Link to Opinion
Consumer Not Mislead by "Will Not Sue" Disclosure
The consumer received a letter that offered three payment options, two of which involved monthly payments. The letter then listed "benefits" to paying the debt, including saving money, stopping collection communications, and obtaining "peace of mind."
The letter contained the following statute-of-limitations (SOL) disclosure about two-thirds of the way down the first page: "The law limits how long you can be sued on a debt and how long a debt can appear on your credit report. Due to the age of this debt, we will not sue you for it or report payment or non-payment of it to a credit bureau."
The consumer argued that the letter was deceptive or misleading under 15 U.S.C. § 1692e because (1) the SOL disclosure said that the creditor "will not sue," instead of conveying that the collector could not sue as a matter of law; (2) the letter did not warn the recipient that a payment could revive or restart the statute of limitations; and (3) the letter touted various "benefits" to paying the debt but did not inform the consumer that the best option for dealing with a time-barred debt is to ignore it. The Ninth Circuit rejected each argument.
The Court held that the least sophisticated consumer would not be deceived or misled by the SOL disclosure because the statement that the collector "will not sue" was immediately preceded by a sentence explaining that "[t]he law limits how long you can be sued on a debt…" Therefore, the Court found that a consumer would naturally conclude that the debt was time barred. The Court also noted that nothing in the letter falsely implied that the collector could sue the consumer; and the Court specifically pointed out that the letter did not include a "settlement offer," which other circuits found could falsely imply that the debt is enforceable in court.
The consumer resided in Idaho, where a partial payment on a time-barred debt can restart the statute of limitations. However, the card agreement between the original creditor and the consumer provided that Nevada law governed the account. Under Nevada law, a partial payment on a time-barred debt will not restart the limitation period.
Not Required to Disclose "Partial Payment" Can Revive SOL
The consumer asserted that a revival warning was required regardless of which state's law applied. If Idaho law applied, then he could lose the protection of the statute of limitations by making a payment on his debt. If Nevada law applied, he argued that a payment, even if it did not restart the limitation period, would leave him in a worse position because he would be forced to argue complicated choice-of-law issues in response to a lawsuit.
The Court disagreed and explained that while the FDCPA requires collectors to give certain disclosures, such as the "Mini-Miranda" and the disclosures required by 15 U.S.C. § 1692g, "nothing in the FDCPA requires debt collectors to disclose that partial payments on debts may revive the statute of limitations in certain states."
"Benefits" of Payment Language Not Deceptive
Finally, the Court rejected the consumer's argument that the letter was deceptive because it listed "benefits" to paying the time-barred debt and failed to convey that consumers have the option of paying nothing. The Court noted that in most states, including Idaho and Nevada, the running of the statute of limitations does not extinguish the debt, it merely forecloses a judicial remedy. Therefore, there is "nothing inherently deceptive or misleading in attempting to collect a valid, outstanding debt, even if it is unenforceable in court."
The Court explained that because in most states a time-barred debt is still legally owed, it is not deceptive to say that the consumer will save money by paying a discounted amount. Also, collectors are not obligated to inform consumers that they do not have to pay their debt to stop communications because they can also stop communications by exercising their rights under 15 U.S.C. § 1692c(c). Finally, saying that a consumer can obtain "peace of mind" by paying the debt does not imply a threat of suit when the communication also discloses that the creditor will not sue the consumer.
Ruling Aligns With 6th and 11th Circuits, But Not 7th Circuit
The SOL disclosure at issue in this case is one that was mandated by the FTC and the CFPB in consent orders, and it is substantially similar to those required by legislation in California, Connecticut, and Texas. Furthermore, the Sixth Circuit and the Eleventh Circuit have each noted that the use of a similar SOL disclosure could remedy any false implication that a time-barred debt is enforceable in court.
On the other hand, the Seventh Circuit has held that using only the second sentence of the disclosure (informing the consumer that the creditor will not sue) is insufficient without the first sentence informing the consumer that "the law limits how long you can be sued on a debt." The Seventh Circuit also found that "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."
CFPB Likely to Propose Disclosures in 2020
Further clarity might come in the form of supplemental CFPB rulemaking. The Bureau's Notice of Proposed Rulemaking released in May 2019 did not address time-barred debt disclosures but the NPRM noted that the Bureau planned to test disclosures and might issue a disclosure proposal at a later date. Earlier this month, Director Kraninger told a group of state attorneys general that the Bureau intends to release a Supplemental Notice of Proposed Rulemaking on this issue "very early in 2020."
Ralph T. Wutscher
Maurice Wutscher LLP
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