Joint CFPB-FTC Brief: Collecting on Time-Barred Debt Can Violate FDCPA

The Consumer Financial Protection Bureau and Federal Trade Commission this week said in a court brief that “actual or threatened litigation is not a necessary predicate for an FDCPA violation in the context of time-barred debt.” The brief argues that under certain circumstances, a settlement offer — and other collection activity — on an out-of-statute account can mislead the consumer and could be a violation of the FDCPA.

The two agencies filed a joint amicus brief with the Sixth Circuit Court of Appeals in a class action case over language in a collection letter that offered a consumer a chance to settle the debt. The case, Buchanan v. Northland Group, had been dismissed by a district court judge and is on appeal to the Sixth Circuit.

The debt collector in this case sent Buchanan a dunning letter with an offer to settle a debt upon which the statute of limitations had expired. Buchanan filed a class-action complaint, contending that the letter violated the FDCPA’s prohibition on the use of “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” (15 U.S.C. § 1692e) On the debt collector’s motion, the district court, in the Western District of Michigan, dismissed the complaint, holding that, as a matter of law, the letter could not have violated the FDCPA.

The FTC and CFPB argue that the dismissal should be overturned, but take no position on the ultimate merits of plaintiff’s claims.

The settlement offer in question represented that the consumer’s balance would continue to accrue “interest” and included a warning that the company was “not obligated to renew” the settlement offer.  The brief noted that “Even if those statements are not deemed an implicit threat of litigation—an issue this brief does not address—they could plausibly mislead an unsophisticated consumer into believing that she could be sued for the debt. The district court thus erred in holding that, as a matter of law, the letter could not mislead the least sophisticated consumer, and the court’s dismissal of the complaint should be reversed.”

The amicus brief also noted that the letter did not disclose that the account was beyond the statute of limitations. The FTC and CFPB underscored this point by noting, “A debt collector’s communication need not contain overtly false statements to be misleading or deceptive; omissions may also deceive.”

The position in this case on deceptive collection letter language regarding time-barred debt is nearly identical to a previous joint FTC-CFPB amicus brief.

In September 2013, the agencies filed a brief in Delgado v. Capital Management Services, LP, et al. — in the Seventh Circuit — that made very similar arguments. That case also involved a settlement offer made in a letter on a time-barred debt. In fact, both included identical sections entitled “In a Range of Circumstances, Collecting or Attempting to Collect Time-Barred Debts Violates the FDCPA.”

The primary difference in the cases is the disposition of the lower court. In Delgado, the defendant appealed to the Circuit Court after the district court denied its motion to dismiss. The FTC and CFPB filed for the Seventh Circuit to uphold the decision. In Buchanan, the opposite occurred.

It is too early to know if the Delgado brief was successful. The case was argued in late September 2013 and a decision has not been handed down. But one thing is clear: the CFPB, and FTC, are taking a hard line on the practices used in the collection of time-barred debt, down to the literal letter of language used in communications.

We’ve known for a while that communications with consumers about time-barred debt is a growing concern for the CFPB. Time is Running Out: Statue of Limitations for Debt Collection, an insideARM publication, breaks down the statute of limitations for various types of debt in all 50 states. Once your agency knows how each state defines different types of debt, and when the clock starts ticking on your time to collect, you can start to optimize customer communications while staying within the legal bounds.

Furthermore, the CFPB dedicated an entire section of its Advanced Notice of Proposed Rulemaking to questions about time-barred debt. The Bureau’s concern seems to be that neither the FDCPA nor Dodd-Frank include requirements for time-barred debt; state-by-state rules cause confusion for collectors and consumers alike. In the ANPR, the Bureau considers the creation of uniform notices collectors would use to inform consumers about their rights regarding time-barred debt.

Find out more about how the industry reacts to time-barred debt, and how it impacts consumers’ reactions, at our next insideCompliance: Assessing the Impact of CFPB Rules on Debt Collectors. John Bedard, Ron Canter, John Rossman and Linda Straub-Jones will give their expertise on questions directly from the ANPR: What’s the best language to use when talking about time-barred debt with consumers? How should collectors deal with partial payments? What should re-trigger the statute of limitations on a debt? These are answers every debt collector needs to know.