In what is sure to be the hot topic for 2017, the Federal District Court in Kansas has set the stage for even more confusion when it comes to disclosure of a payment on a time-barred debt.
The two cases, Smothers v. Midland Credit Mgmt and Boedicker v. Midland Credit Mgmt were decided within 24 hours of the other pursuant to Motions for Summary Judgment. Both matters involved the identical demand letter and, in both instances, there was no dispute that the debts were past the statutes of limitation. The Defendant, Midland, also put into the record its express policy not to sue on any matter that was past the applicable statute of limitations.
The Smothers court held that the failure to provide a disclosure that payment would revive the debt was confusing to the consumer and thus violated the Fair Debt Collection Practices Act (“FDCPA”). The Boedicker court found the exact opposite, concluding that a debt collector had no such duty to make such a disclosure.
Both letters offered payment options in large, bold font in the center of the page, including an option to make monthly payments as low as $50. Both letters made the following statements: “put the debt behind [you]” and receive “peace of mind.” At the bottom, in smaller font, both letters also contained the following time-barred debt disclosure:
“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. If you do not pay the debt, we may continue to report it to the credit reporting agencies as unpaid.
*If you pay your full balance, we will report your account as Paid in Full. If you pay less than your full balance, we will report your account as Paid in Full for less than the full balance.”
The question raised in both cases was whether Midland’s time-barred debt disclosure, taken in context with the rest of the letter, listing the benefits of payment, constituted a misrepresentation and thus a violation of the FDCPA.
In Smothers, the Court found that, under the “least sophisticated consumer” test, the letter, by listing the “benefits” of paying stale debt – while omitting the concurrent risks of paying the debt – was in fact misleading.
The Court stated that, while Midland may have a policy not to sue, there was nothing preventing them from selling the debt to someone who could. “Defendant’s promise not to sue does not impact the legal effect of making a partial payment because the revival of a statute of limitation is statutory – not a decision made by a debt collector.” The Court found that, while Smothers may indeed receive some of the benefits listed, by making a payment she exposed herself in Kansas to a lawsuit on the previously-stale debt by another debt collector.
In Boedicker, the District Court found that since the letter lacked any use of the term “settlement” and contained “far more than a hint regarding the statute of limitations,” there was no such threat of litigation and thus no confusion upon the consumer.
It is interesting to note that both courts examined the Federal Trade Commission's (FTC) 2012 Consent Order with Asset Acceptance, along with the Consumer Financial Protection Bureau’s (CFPB) recent Outline of Proposal for Debt Collection to highlight the fact that, in both instances, each agency did not mandate or propose a revival disclosure. In Smothers, the Court found that a lack of a revival disclosure in the Asset case was probably the result of a compromise by the FTC, while at the same time chastising the CFPB for not recommending such a disclosure. In Boedicker, the Court found the lack of a revival disclosure by either agency as persuasive and thus such a disclosure is not otherwise mandated upon any debt collector.
So what is a debt collector to do?
Several years ago it was suggested that after McMahon and Buchanan “settlements were dead.” The fixation by many courts as well as the FTC and CFPB on not only the word “settlement” but the intent of same is so troubling. It will only be a matter of time when the use of the word “resolve” or “payment options” will take on hyper-sensitive meanings and inferences, especially upon the “least sophisticated consumer.” For those consumer-friendly courts who buy into the tortured logic of the CFPB and FTC, any attempt to resolve a legitimately-owed debt, despite its age, will be met with much scrutiny, no matter what words are used.