Yesterday the Court of Appeals for the Seventh Circuit affirmed a lower court ruling that Portfolio Recovery Associates, LLC (PRA) violated the Fair Debt Collection Practices Act (FDCPA) by sending a letter that could be deceptive and misleading to the least sophisticated consumer. The case is Pantoja v. Portfolio Recovery Associates, LLC., (Case No.15-1567, U.S. Court of Appeals, Seventh Circuit).

A copy of the opinion can be found here.

Background 

The factual background for this case is taken from the court’s opinion.  Their slant on the facts foretells the court's thinking on the case. 

“Back in 1993, Plaintiff Manuel Pantoja incurred a debt for a Capital One credit card that he applied for but never actually used. Nevertheless, Capital One assessed annual fees, late fees, and activation fees against Pantoja’s account. Not surprisingly, he never made any payment on the account.

Twenty years later, long after the statute of limitations had run, PRA had bought Capital One’s rights to this old debt and sent Pantoja a dunning letter trying to collect. The federal Fair Debt Col lection Practices Act (“FDCPA”) prohibits collectors of consumer debts from, among other things, using “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e. This appeal concerns the practice of attempting to collect an old consumer debt that is clearly unenforceable under the applicable statute of limitations. 

The district court granted summary judgment in favor of plaintiff Pantoja on his claim under § 1692e. The court found the dunning letter was deceptive or misleading because (a) it did not tell the consumer that the defendant could not sue on this time‐barred debt and (b) it did not tell the consumer that if he made, or even just agreed to make, a partial payment on the debt, he could restart the clock on the long‐expired statute of limitations, in effect bringing a long‐dead debt back to life. Pantoja v. Portfolio Recovery Assocs., LLC, 78 F. Supp. 3d 743 (N.D. Ill. 2015). 

In April 2013, PRA sent a dunning letter to Pantoja claiming he owed $1,903.15. The letter said:

We are offering to settle this account FOR GOOD! Life happens and at times you may fall behind on your commitments. We understand and are offering you the opportunity to lock in this settlement offer with a low down payment of $60.00. If settling this account with the options that we are offering is difficult for you, give us a call.

Other payment options may be available so please call 1‐800‐772‐1413 for more information. 

Please understand, we can’t help you resolve this debt if you don’t call, our friendly representatives are waiting. Because of the age of your debt, we will not sue you for it and we will not report it to any credit reporting agency.           

The letter also proposed three “settlement offers” to choose among. The first called for a “down payment” of $60.00 and payment of an additional $511.00 within a month, with the claim that this would “save” Pantoja $1,332.15. The second option called for a down payment of $45.00 and six monthly payments of $104.00 each, to “save” Pantoja $1,234.15. The third option called for a down payment of $40.00 and twelve monthly payments of $60.00, to “save” Pantoja $1,143.15.

The offers added: “Once the full settlement payment is received your account will be considered settled in full.” The second page of the letter cautioned: “We are not obligated to renew this offer.” See Evory v. RJM Acquisitions Funding L.L.C., 505 F.3d 769, 776 (7th Cir. 2007) (stating that this sentence, word-for‐word, would protect consumers from false impressions concerning collectors’ supposedly “one‐time” settlement offers).” 

The Court’s Opinion 

The court noted that its principal focus was on the following language in the dunning letter: “Because of the age of your debt, we will not sue you for it and we will not report it to any credit reporting agency.” 

As noted above, the district court had granted summary judgment for Pantoja on his claim under the FDCPA. The lower court offered two independent reasons: 

  • The first was that the dunning letter failed to warn Pantoja that if he accepted any of the settlement offers, whether by making a partial payment or even by just agreeing to make a payment, he would lose the protection of the statute of limitations.
  • The second is that the letter deceptively said that PRA had chosen not to sue Pantoja, rather than saying that the debt was so old that PRA could not sue him for the alleged debt. 

The three-judge panel at the court of appeals agreed with the lower court’s analysis. 

Per the opinion:

“We agree with the district court’s two reasons for finding that the dunning letter here was deceptive. First, the letter does not even hint, let alone make clear to the recipient, that if he makes a partial payment or even just a promise to make a partial payment, he risks loss of the otherwise ironclad protection of the statute of limitations. Second, the letter did not make clear to the recipient that the law prohibits the collector from suing to collect this old debt. Either is sufficient reason to affirm summary judgment for the plaintiff.

We begin with the danger that a debtor who accepts the offered terms of settlement will, by doing so, waive his otherwise absolute defense under the statute of limitations. Only the rarest consumer‐debtor will recognize this danger.

Whatever the precise scope of the Illinois law on restarting the statute of limitations clock with a partial payment or new promise to pay, either step would have put Pantoja in a much worse legal position than he would have been in before taking the step. 

We believe 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.

The second reason we agree with the district court that PRA’s letter is deceptive and misleading is that it gives the impression that PRA has only chosen not to sue, not that it is legally barred from doing so. Defendant points out, though, that its letter to Pantoja does not threaten a lawsuit, and it even says that PRA “will not sue you for it.” 

As the district noted, this carefully worded sentence was taken from a 2012 consent decree between the Federal Trade Commission and another debt collector. Where that other collector knew the statute of limitations had expired, the decree required collection letters to say: “The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it.” McMahon v. LVNV Funding, LLC, 2012 WL 2597933, at *2 (N.D. Ill. July 5, 2012), rev’d on other grounds, 744 F.3d 1010 (7th Cir. 2014); see also 78 Fed. Reg. at 67,876 n.240 (quoting consent decree). 

As the district court also noted, PRA omitted the first sentence from the consent decree about the law limiting how long you can be sued for a debt. It opted instead to include only the vaguer “Because of the age of your debt we will not sue you for it ….” The reader is left to wonder whether PRA has chosen to go easy on this old debt out of the goodness of its heart, or perhaps because it might be difficult to prove the debt, or perhaps for some other reason. 

We are not sure that the only reasonable way to read defendant’s letter is the district court’s reading, that the letter would confuse all unsophisticated consumers, but we are confident that it is one reasonable way to read it. Closer to the heart of the issue, this letter is an example of careful and deliberate ambiguity. (Recall how it adopts part of the language from another debt collector’s consent decree.) 

The carefully crafted language, chosen to obscure from the debtor that the law prohibits the collector from suing to collect this debt or even from threatening to do so, is the sort of misleading tactic the FDCPA prohibits. The only reason to use such carefully ambiguous language is the expectation that at least some unsophisticated debtors will misunderstand and will choose to pay on the ancient, time‐barred debts because they fear the consequences of not doing so. 

The judgment of the district court is AFFIRMED.” 

insideARM Perspective

This is case is another in the long line of FDCPA cases involving Out-of-Stat debt. 

insideARM maintains a free FDCPA resources page (kept up to date thanks to Joann Needleman of Clark Hill) to provide the ARM community a destination for timely and topical information on the Fair Debt Collection Practices Act (FDCPA). The cornerstone of the page is a chart of significant FDCPA cases. Click on the link in the chart for the complete text of the decision. Where insideARM has already published a story on the case, we provide a link. That chart contains several prior cases involving letter language on Out-of-Stat debt. 

This is the second time this week where insideARM has written a story on a case where the defendant collector attempted to rely on language from a prior consent decree.  However, in that case, as in this one, the defendant only pulled a portion of the language from the prior consent decree. See our story on Pittman v. Jefferson Capital Systems, LLC, et.al. here.  

Finally, as we have written before -- and will probably write again in the future – collecting on Out-of-Stat debt continues to be challenging on many fronts.


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