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The Third Circuit refined its position as to whether collection of time-barred debt may violate the FDCPA where the communication involves an offer to settle. In doing so, the Court joined the Fifth, Sixth and Seventh Circuits in holding that, even absent a threat of litigation, offers to settle time-barred debts could mislead the least sophisticated consumer.
In Tatis v. Allied Interstate, LLC, 2018 U.S. App. LEXIS 3238 (3rd Cir. Feb. 12, 2018), the debt collector sent a letter that read:
[The creditor] is willing to accept payment in the amount of $128.99 in settlement of this debt. You can take advantage of this settlement offer if we receive payment of this amount or if you make another mutually acceptable payment arrangement within 40 days.Tatis at *1-2.
[The creditor] is willing to accept payment in the amount of $128.99 in settlement of this debt. You can take advantage of this settlement offer if we receive payment of this amount or if you make another mutually acceptable payment arrangement within 40 days.
Tatis at *1-2.
Tatis filed suit asserting that the letter violated section 1692e of the FDCPA. Specifically, the consumer alleged that the word “settlement” meant she had a legal obligation to pay the debt and was a false, deceptive or misleading representation or means to collect a debt. Allied’s motion to dismiss was granted by the district court which relied on prior Third Circuit precedent, Huertas v. Galaxy Asset Management, 641 F.3d 28 (3rd Cir. 2011). The district court held that “an attempt to collect a time-barred debt does not violate the FDCPA unless it is accompanied by the threat of legal action.” Id. at *3.
On appeal, the issue before the Court was “whether collection letters may run afoul of the FDCPA by misleading or deceiving debtors into believing they have a legal obligation to repay time-barred debts even when the letters do not threaten legal action.” Id. at *8. The Court held they may.
At the outset, the Court distinguished its prior opinion in Huertas by noting the language in that letter did not refer to a settlement. Instead, in Huertas, the debt collector informed Huertas that his debt had been reassigned and requested that he contact the agency “to resolve the issue.” The Court concluded that Huertas “stands for the proposition that debt collectors do not violate 15 U.S.C. §1692e(2)(A) when they seek voluntary repayment of stale debts so long as they do not threaten or take legal action.” Id. at *7.
The Court then rejected Allied’s argument that because the letter did not threaten legal action, there was no violation of the statute. Joining the Fifth, Sixth and Seventh Circuits, the Court was persuaded by the fact that major dictionaries include within the meaning of “settle” and “settlement” a definition that refers to the conclusion and/or avoidance of a lawsuit. The Court noted that section 1692e contains three distinct categories of prohibited conduct: false, misleading and deceptive representations and noted that “misleading” representations can include more than falsehoods. Refusing to provide a narrow interpretation of the FDCPA, the Court declined to require an actual threat of litigation. Instead, the Court held that “[b]ecause the words “settlement” and “settlement offer” could connote litigation, the least-sophisticated debtor could be misled into thinking Allied could legally enforce the debt.” Id. at *13.
For what it’s worth, the Court then attempted to step back from its decision by stating the following:
Caren Enloe is a partner who concentrates her practice in consumer financial services litigation and compliance, bankruptcy, and commercial litigation with an emphasis on creditor’s rights. She has a deep understanding of the complex compliance environment surrounding the financial services industry and regularly advises financial service companies on licensing and compliance issues involving state and federal consumer protection and finance statutes. Caren is the author of a daily blog titled: Consumer Financial Services Litigation and Compliance where she posts timely and informative updates regarding the CFPB, FTC, and a host of topical litigation issues involving consumer protection law....LEARN MORE