Yesterday, the Sixth Circuit Court of Appeals held that a collection letter offering a “settlement” on a debt subject to an expired limitations period (sometimes called a “time-barred debt”), could violate the Fair Debt Collection Practices Act (FDCPA) 15 U.S.C. § 1692 et seq. The decision in Buchanan v. Northland Group only allows the FDCPA claim to move forward, there was no finding that the letter did violate the FDCPA. Last year the Seventh Circuit Court of Appeals in McMahon v. LVNV handed down a similar decision. You can obtain a copy of the decision here.
Who is Impacted The decision impacts debt collectors collecting debt from or in those states within the Sixth Circuit; namely, Kentucky, Ohio, Michigan and Tennessee.(i)
What the Decision Means Persons who collect time-barred debts within the Sixth Circuit must disclose in communications to debtors concerning debts whose limitations period has expired that 1) the debt is subject to an expired limitations period; 2) that the debtor cannot be sued to collect it; 3) that a partial payment can restart the limitations period; and, 4) whether the debt buyer has, may or cannot furnish information to a credit reporting agency concerning the time-barred debt. (ii)
Language of the Disclosure The decision does not provide specific language to be used when making any of the disclosures.
Timing of the Disclosure The decision does not state when the disclosures must be made. Thus, it is unclear whether the disclosures must be made with each communication.
Use of the word “Settlement” Buchanan held that the use of the term “settlement offer” in a communication to a consumer “falsely implies that the underlying debt is enforceable in court.” The Seventh Circuit in McMahon reached a similar holding. It remains an open issue whether the use of “settlement offer” even when accompanied by proper disclosures, would avoid potential FDCPA liability.
Suggested Sources for Guidance Under a 2012 consent decree, the Federal Trade Commission and a debt buyer agreed to the making of certain disclosures when collecting time-barred debt. The consent decree with the form disclosures is available at www.ftc.gov/sites/default/files/documents/cases/2012/01/120131assetconsent.pdf. The disclosures adopted in the consent order do not state what happens if a payment is made on a time-barred debt which, as noted above, could be interpreted as a required disclosure by the Buchanan decision. Both the FTC and the Consumer Financial Protection Bureau have argued in briefing filed in both Buchanan and McMahon that soliciting a partial payment on a time-barred debt can violate the FDCPA. You should consult with counsel of your own choice to determine the form, content and timing of your disclosures.
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(i) As a result of the Seventh Circuit’s earlier decision in McMahon persons collecting debt from or within Illinois, Indiana and Wisconsin were already faced with making a similar disclosure. (ii) Other state and local jurisdictions already require the making of certain disclosures when collecting time-barred debt and others prohibit the practice of collecting time-barred debt under any circumstance. The requirements and prohibitions of these other jurisdictions are not addressed by this Member Alert. This Alert is intended for Members of DBA International and is for informational purposes only and is in no way intended to provide legal advice. Members are encouraged to consult with an attorney of their choice for legal advice concerning this matter.