Yet again, the industry is punished for the gaps left by statutes and regulations. Only a handful of jurisdictions provide a verbatim safe harbor disclosure to use when collecting on debts that are beyond the statute of limitations, meaning that the creditor can no longer recover the debt through a lawsuit. For states like Illinois that do not provide a safe harbor disclosure, agencies and their legal counsel must use their best judgment to come up with an appropriate disclosure. Unfortunately, this lack of clarity leads to hyper-technical lawsuits on letter wording where agencies are at the courts’ mercy, hoping their disclosure passes muster.
An example of the above is Richardson v. LVNV Funding, LLC and First National Collection Bureau, Inc., 2017 WL 4921971 (N.D. Ill. Oct. 31, 2017). In this case, a Northern District of Illinois judge denied the defendants’ motion to dismiss the complaint. This suit contains a single claim regarding the out of statute disclosure provided in First National’s letter to the plaintiff. As mentioned above, Illinois does not have a safe harbor out of statute disclosure. Doing its diligence, First National included a disclosure that was deemed sufficient by the Federal Trade Commission (FTC) to warn consumers of their rights on an out of statute debt in its consent order with Asset Acceptance, LLC.
A copy of the court's decision can be found here.
First National Collection Bureau, Inc., which was collecting the debt on behalf of LVNV Funding, LLC, sent the plaintiff a letter with the following disclosure:
The law limits how long you can be sued on a debt. Because of the age of your debt, LVNV Funding, LLC will not sue you for it, and LVNV Funding, LLC will not report it to any credit reporting agency.
In many circumstances, you can renew the debt and start the time period for filing of a lawsuit against you if you take specific actions such as making certain payment on the debt or making a written promise to pay. You should determine the effect of any actions you take with respect to this debt.
The complaint alleges that using the words “will not sue” in the disclosure is false, deceptive, and misleading because it implies that LVNV was choosing not to sue the consumer, rather than being prohibited from doing so.
Defendants’ motion to dismiss argued that (1) this is FTC-approved language; (2) that providing any more information would constitute providing legal advice to the consumer; and (3) that the language used followed the guidance in Pantoja v. Portfolio Recovery Associates, LLC, 852 F.3d 679 (7th Cir. 2017).
The Court's Decision
The court, not swayed by these arguments, denied the motion to dismiss. The decision finds that the disclosure could be construed to imply that the defendants were choosing not to sue, making this a question of fact that cannot be decided on a motion to dismiss. While this is not a dispositive decision in this case, it provides insights into the court’s disapproval of the language used by First National. The decision references that a fix as simple as changing “will not” to “cannot” would have solved this issue.
Notably, the court found that the language proposed by the FTC consent order is not persuasive since it applies only to the party that entered into the consent order. The court implied that the FTC’s disclosure would have carried more weight had it come about through a formal rule making process.
The Dilemma and the Solution
These types of lawsuits demonstrate the need for a clear, comprehensive, and consistent set of rules regarding the appropriate disclosure to use on time barred debts. Currently, there are several jurisdictions with varying required verbatim disclosures for out of statute debts, but far more jurisdictions provide no guidance. Following this decision’s logic, had there been a federal rule with a safe harbor out of statute disclosure, this decision may have been decided differently.
This lack of clarity leads to suits such as this one. As a result, collection notice disclosures are being written “off the cuff” by case law – varying from jurisdiction to jurisdiction – rather than by statutes and regulations that govern our industry. Without clear guidance, agencies are left to their own devices to figure out what precise wording would satisfy each requirement. Plaintiffs’ counsel jump at the chance to challenge agency-created disclosure language since the lack of specific instruction leaves the decision to a judge’s discretion. Often times, courts tell agencies what they cannot say rather than what they can say.
This trial and error method of creating disclosures is costly to agencies and leaves a high level of uncertainty in the industry. If agencies are expected to comply with vague laws, there should be clear supplemental guidance on how to do so or, alternatively, agencies should not be penalized for their diligent attempts to comply with such laws.
The CFPB’s outline of proposed third party collection agency rules includes a discussion about appropriate disclosures for debts that are beyond the statute of limitations. By providing a safe harbor out of statute disclosure, the CFPB would be assisting consumers and agencies alike. Consumers would have the benefit of receiving a clear, consistent out of statute disclosure across the board. Agencies would be protected against such nuanced lawsuits. The only individuals that would not benefit from a comprehensive, clear set of rules are the crafty plaintiffs’ attorneys who profit off of these hyper-technical suits.