Court Finds Settlement Offers on Time-barred Debts Without Disclosure of the Fact That the Debt is Time-Barred to be FDCPA Violation

In a Memorandum Opinion and Order filed on May 9, 2016 a United States District Court Judge for the Northern District of Illinois granted Summary Judgment in favor of the plaintiffs in a Fair Debt Collection Practices Act (FDCPA) lawsuit involving publicly traded debt buyer Portfolio Recovery Associates, LLC (PRAA). The opinion in the case, Magee and Peterson v. Portfolio Recovery Associates, LLC (Case No. 12 cv 1624, Northern District,  Illinois, Eastern Division) can be found here.

This litigation has been ongoing since March 6, 2012.  insideARM has previously written about this case. In October 0f 2015, we wrote about the class certification in the case.

Factual Background

On October 3, 2011, PRAA sent Magee, a resident of Illinois, a letter to collect on a debt originally owed by Magee to Capital One Bank. Magee alleges that this debt was incurred prior to 2004, if it was incurred at all.

The letter stated:

Your account was purchased on 7/8/2011 from Capital One Bank, N.A. This letter confirms your arrangement to make the following payment(s) to settle this account.

Payment in the amount of $250.00 is due by 10/5/2011.

Payment in the amount of $193.93 is due by 10/29/2011.

Payment in the amount of $198.93 is due by 11/29/2011.

Should you miss any of the payments described herein, this payment plan may become null and void.

If you complete this payment plan and our company is reporting our company’s trade line for this account to the three major credit reporting agencies, our company will report this account as settled.

PRAA sent Peterson, an Indiana resident, letters to collect on two separate debts that were originally owed to Capital One Bank. Peterson alleges that these debts were incurred prior to 2005, if they were incurred at all. Both letters stated:

We want to help you resolve your account and have developed three affordable options for you to pay off this account [including] Single Payment Settlement Option [,] 6 Month Settlement Plan [and] Balance in Full Payment Plan.

Your account will be considered “Settled in Full” after we post your final payment.

The Arguments

Plaintiffs contend PRAA engaged in unfair and deceptive acts and practices in violation of Sections 1692e, 1692e(5), 1692e(10), and 1692f of the FDCPA by failing to disclose to the Plaintiffs that the statute of limitations had expired and that the debt could not be collected through a court action. Plaintiffs further allege that PRAA’s offers in the collection letters to “settle” the debt are misleading because they imply that a time-barred debt is legally enforceable

Plaintiff’s complaint had two main components. In count I, plaintiffs had alleged that PRAA violated the FDCPA by “sending consumers collection letters that contain settlement offers on time-barred debts without disclosure of the fact that the debt is time barred” and that the “nondisclosure in conjunction with the offers of a ‘settlement’ implies a colorable obligation to pay and is misleading to the consumer.”

Count II allegations were that PRAA violated the FDCPA “by referring to credit reporting on debts so old that they cannot be reported on an ordinary credit report.”

The Court’s Analysis

The opinion was written by the Honorable John W. Darrah, U.S. District Court Judge, who found as follows:

As to Count I:

“Defendant (PRAA) failed to include language stating that Plaintiffs’ debt was time barred, that they could no longer be sued on that debt, and that a partial payment would reset the statute of limitations period. Defendant’s failure to include such language in the dunning letter is clearly deceptive on its face.

The “settlement” language in the Magee and Peterson letters offer a significant savings on the consumers’ debts and encourage them to act quickly to take advantage of these savings. By failing to include language that the law limits how long consumers can be sued on their debt, the statements in question urge them to make payments on time-barred debt without informing them of the consequences of making those payments, i.e. ‘a gullible consumer who made a partial payment would inadvertently have reset the limitations period and made herself vulnerable on the full amount.’ Such language could influence a consumer’s decision, and is material. Thus, Plaintiffs’ Motion for Summary Judgment as to Count I is granted.”

As to Count II:

“The language at issue here is the statement in the Magee letter that indicates that Defendant would report Magee’s debt as “settled” to a credit reporting agency if Magee agreed to the suggested payment plan. This language is nearly identical to the language discussed in Gonzalez v. Arrow Fin. Servs., LLC, 660 F.3d 1055 (9th Cir. 2011) (Gonzalez). As in that case, there is no circumstance under which Defendant could legally report an obsolete debt to a credit reporting agency or make a positive report in the event of payment. The implication that Defendant could do so here is misleading on its face.

As noted by Plaintiffs, misleading a consumer to believe a debt is legally reportable and that making a payment on that debt will improve his or her credit score is a deception that has the ability to influence that consumer’s decision. Therefore, because the statements regarding “credit reporting” are misleading on their face and materially false, Plaintiffs’ Motion for Summary Judgment is granted as to Count II.”

insideARM Perspective

insideARM has a page on its website labeled FDCPA Resources. Within that page is a FDCPA Caselaw chart that is updated on a monthly basis by Joann Needleman of the Clark Hill law firm.  A quick glance at that grid shows several other cases involving settlement offers on time-barred debt. Most, if not all of those cases are decisions that are identified as “Negative” for the ARM industry.

Calculation of the appropriate Statute of Limitations often requires an abacus, slide ruler, the latest and greatest calculator, access to a super computer, a PHD in mathematics, and a law degree. Depending upon the underlying facts, state laws, and payment history on an account, it is a challenge to determine with absolute certainty what date an account becomes “time-barred”. The cases in the aforementioned case law grid provide some guidance for the industry on what can and cannot be said in a letter on “time-barred” accounts, but nothing is black and white.

As noted above, this case dates back to 2012.  One would hope the ARM industry has studied all of the “time-barred” debt cases in the last several years (including this case) and there would not be many more cases in the future with similar facts.

Forewarned is forearmed. For those of you that studied Latin in high school or college, the Latin saying “Praemonitus, Praemunitus” loosely translates into a similar warning.