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District court: Debt collector must disclose partial payment or promise to pay will restart statute of limitations
On September 28, the U.S. District Court for the Northern District of Illinois granted a plaintiff’s motion for summary judgment in an FDCPA action, ruling that a debt collector (defendant) was required to disclose that a partial payment or new promise to pay would restart the statute of limitations under state law. The plaintiff received a dunning letter from the defendant seeking to collect time-barred credit card debt. A disclaimer included in the letter, which presented several options to resolve the debt, stated: “The law limits how long you can be sued on a debt and how long a debt can appear on your credit report. Due to the age of this debt, we will not sue you for it or report payment or non-payment of it to a credit bureau. In addition, we will not restart the statute of limitations on the debt if you make a payment.” The plaintiff filed a lawsuit alleging violations of Sections 1692e and 1692f of the FDCPA, claiming that the disclosure language was misleading and deceptive because it failed to disclose (i) “the effect of partial payment on the statute of limitations”; (ii) “that the statute of limitations on the debt had run”; and (iii) “that no information about the debt could be reported to credit bureaus.” The defendant countered that the first two sentences of the disclosure were included pursuant to a consent order with the CFPB and “that its policy is to continue treating a time-barred debt as expired even if a consumer makes a partial payment.” The defendant further argued that there was “no potential ‘pitfall’ to partial payment” because of its policy not to restart the statute of limitations when a partial payment was made, and that its “explicit promise that it will not sue even if Plaintiff makes a payment dispels any potential confusion.”
The court disagreed, finding that the defendant’s promise not to restart the statute of limitations without disclosing that a partial payment or a promise to pay would restart the statute was “misleading and deceptive” under Illinois law. The court also ruled that the plaintiff “is not expected to know [the defendant’s] internal policies regarding suing on debts where the statute of limitations has run or rely on its promises to not pursue a debt collectible in court after the statute of limitations protection has been forfeited.” The defendant’s policy, the court stated, does not obviate the “need to explain the mechanics of reviving the statute of limitations under Illinois law.”
5th Circuit: Collection letters misrepresenting legal enforceability of underlying debt violate FDCPA
On April 29, the U.S. Court of Appeals for the Fifth Circuit held that letters seeking the collection of time-barred debt that include ambiguous offers and contain threats misrepresenting the legal enforceability of the underlying debt violate section 1692e of the FDCPA. In 2011, a creditor placed the plaintiff’s debt with the defendant for collection. Six collection letters were initially sent to the plaintiff for which there was no response, and in 2017, the defendant sent four more letters to the plaintiff. While it was undisputed that the four-year statute of limitations to sue to collect the debt had expired, none of the letters mentioned that the debt was time-barred or that a partial payment may restart the statute of limitations clock. The plaintiff filed suit claiming the 2017 letters violated the Texas Debt Collection Act and were false or misleading and unfair or unconscionable in violation of FDCPA §§ 1692e and 1692f respectively. The district court granted summary judgment for the plaintiff on the 1692e claim, but ruled that “‘there is a growing consensus’ that a claim under § 1692f is a ‘backstop’ to catch conduct outside that barred by § 1692e and other provisions,” and granted summary judgment to the defendant on the 1692f claim. The defendant appealed the 1692e decision.
On appeal, the 5th Circuit affirmed and held that, read as a whole, the letters misrepresented the legal enforceability and character of the debt in violation of § 1692e. The appellate court found that the 2017 letters were ambiguous and failed to even mention when the debt was incurred, which may have provided some insight to the plaintiff as to whether the debt might be legally enforceable. The appellate court also took issue with the 2017 letters’ use of unexplained “urgent” language and vague collection threats, and stated that “the complete silence in these letters works in conjunction with their vague language to mislead the unsophisticated consumer that the debt is enforceable.”
On March 31, the U.S. Court of Appeals for the Eleventh Circuit partially affirmed a district court’s dismissal of federal and state law claims against a loan servicer, concluding that while a 1099-A form sent to the plaintiff was not an attempt to collect a debt under the FDCPA, the district court erred in determining that the claim was time-barred. The plaintiff filed suit alleging violations of the FDCPA, the Florida Consumer Collection Practices Act, the Florida Deceptive and Unfair Trade Practices Act, and the Florida Mortgage Brokerage and Lending Laws (MBBL). After the district court dismissed her initial and amended complaints, the plaintiff appealed, arguing, among other things, that the district court erred when it (i) determined that the defendant’s mailing of IRS form 1099-A was not an attempt to collect a debt under the FDCPA; (ii) dismissed her FDCPA claim as time-barred because the statute of limitations had expired; (iii) found that the defendant was not involved in the original loan transaction and therefore could not be liable for damages under the MBLL; and (iv) declined “to exercise supplemental jurisdiction” over the other state law claims after dismissing the FDCPA claims with prejudice.
On appeal, the 11th Circuit agreed that the form 1099-A “was not a communication in connection with debt collection” because it did “not demand payment, state that it was an attempt to collect a debt, or state to whom or how to make a payment of the debt.” The appellate court also agreed that the district court properly dismissed the plaintiff’s MBLL claim because she failed to plead that the defendant made her mortgage loan as required under the MBLL. The district court’s decision to dismiss the remainder of the state-law claims was also affirmed. However, the 11th Circuit disagreed with whether the plaintiff’s FDCPA claim was time-barred, concluding that while the one-year statute of limitations under the FDCPA begins to run on the date the communication is mailed, the appellate court has “never held that, when the date of mailing is in dispute and a plaintiff alleges receipt of a letter on a certain date, a court could presume a mailing date based on the date of receipt and the parties’ addresses.” (Emphasis in the original.) According to the 11th Circuit, “the district court erred in dismissing [the plaintiff’s] FDCPA claims as untimely when her complaint did not allege a date of mailing of the February mortgage statement, and it was not apparent from the face of her complaint whether her claim was time-barred.”
On March 10, Senate Banking Committee Ranking Member Sherrod Brown (D-Ohio) released a minority staff report titled “Consumers Under Attack: The Consumer Financial Protection Bureau under Director Kraninger.” Specifically, the report faulted the Bureau for, among other allegations, purportedly protecting payday lenders, failing to properly scrutinize student loan servicers, and failing to enforce civil rights protections. The report was released the same day Kraninger testified before the Senate Banking Committee (covered by InfoBytes here). Among other things, the report argues that the CFPB’s proposed debt collection rule and supplemental notice of proposed rulemaking (covered by InfoBytes here and a Buckley Special Alert) “does more to provide safe harbors for debt collectors than protect consumers” by not banning the collection of time-barred debt. The report also reiterates concerns over Kraninger’s decision to no longer defend the CFPB’s constitutionality (covered by InfoBytes here), as well as her decision last year to delay certain ability-to-repay provisions of the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (covered by InfoBytes here), which has led to stays of enforcement actions.
On March 4, the U.S. Court of Appeals for the Fifth Circuit affirmed summary judgment in favor of a debt collector (defendant) accused of violating the FDCPA and the terms of a CFPB consent order. According to the opinion, the defendant attempted to collect a credit card debt from the plaintiff that the plaintiff did not recognize. In December 2014, the defendant filed suit to collect the past due debt. In the meantime, the CFPB issued a consent order against the defendant for violations of the FDCPA (covered by InfoBytes here) while the parties awaited trial. Thereafter, the plaintiff filed a complaint with the CFPB regarding the validity of the debt, but the Bureau closed that complaint after verifying the defendant’s ownership of the plaintiff’s debt. The plaintiff responded by filing his own lawsuit in March 2017, claiming the defendant violated the FDCPA by (i) “lacking validation of his debt prior to his January 2016 trial”; (ii) failing to timely validate his debt in violation of provisions of its consent order with the CFPB; and (iii) “misrepresenting that it intended to prove ownership of his debt if contested.” The district court granted summary judgment for the defendant based on the plaintiff’s failure to prove actual damages.
On appeal, the appellate court determined that the district court erred in ruling that the plaintiff failed to plead actual damages, finding that “the FDCPA does not require proof of actual damages to ground statutory damages.” However, the appellate court did not reverse the district court’s decision. Instead, the appellate court affirmed, holding that the plaintiff’s debt validation claims were time-barred because he did not file suit within the FDCPA’s one-year statute of limitations. Regarding the other two claims, the appellate court stated that while the claims were not time-barred, the plaintiff lacked standing because “private persons may not bring actions to enforce violations of consent decrees to which they are not a party.” The CFPB’s consent order with the defendant specified that the CFPB was the enforcer of the order, and its text could not be read to invoke a private right of action permitting the plaintiff’s suit. Accordingly, the appellate court affirmed summary judgment against the plaintiff on these remaining two claims.
Special Alert: CFPB releases Supplemental Notice of Proposed Rulemaking on Time-Barred Debt Disclosures
On February 21, the CFPB issued a Supplemental Notice of Proposed Rulemaking (NPRM) to amend Regulation F, which implements the Fair Debt Collection Practices Act (FDCPA), to require debt collectors to make certain disclosures when collecting time-barred debts (the “Supplemental Proposed Rule”).
The Supplemental Proposed Rule adds to the CFPB’s proposed rule, issued May 7, 2019, (InfoBytes coverage here), to amend Regulation F to broadly implement the FDCPA, with respect to third-party debt collectors (the “Proposed Rule”). The Bureau noted when releasing the earlier Proposed Rule that it was contemplating additional disclosure requirements for time-barred debt, and reserved space for such disclosures within Regulation F, as then proposed. The CFPB released several documents related to the Supplemental Proposed Rule, including a fact sheet discussing the Supplemental Proposed Rule and a report on the disclosure of time-barred debt and the right of revival, providing findings from quantitative disclosure testing that the CFPB conducted.
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Click here to read the full special alert.
If you have any questions regarding Time-Barred Debt Disclosures or other related issues, please visit our Debt Collection & Buying practice page or contact a Buckley attorney with whom you have worked in the past.
On July 11, the U.S. District Court for the Eastern District of Washington granted a debt collector’s motion for summary judgment, concluding the attempted collection of an old debt did not violate the FDCPA. According to the opinion, a consumer filed a class action lawsuit against the debt collector alleging the collector violated the FDCPA by (i) “falsely representing the legal status of the debt”; and (ii) using “false representations and/or deceptive means to collect or attempt to collect a debt,” when it sent a collection letter in March 2017 attempting to collect on a debt that allegedly incurred before 2009. The debt collector moved for summary judgment arguing that the consumer did not have standing and that the claim failed on the merits. The district court agreed with the debt collector, concluding that the consumer did not have standing to pursue the FDCPA claim because she did not incur any concrete injury, noting she made no claims that she was misled by the letter or confused about the status of her debt, nor did she pay on the debt or make a promise to pay. Moreover, the district court agreed that the debt collector adequately informed the consumer about the status of her debt, stating “[t]he letter clearly states that ‘[t]he law limits how long you can be sued on a debt’ and states that, ‘[d]ue to the age of this debt, we will not sue you for it[.]’” Lastly, the district court found that in order to comply with the FDCPA, the debt collectors were not required to inform consumers of the “supposed risks of partial payments or entering a payment plan.”
On June 14, the Texas governor signed HB 996, which prohibits debt buyers from commencing an action against or initiating arbitration with a consumer for the purpose of collecting a consumer debt after the statute of limitations (SOL) has expired. The bill defines “debt buyer” as “a person who purchases or otherwise acquires a consumer debt from a creditor or other subsequent owner of the consumer debt, regardless of whether the person collects the consumer debt, hires a third party to collect the consumer debt, or hires an attorney to pursue collection litigation in connection with the consumer debt.” Additionally, the bill (i) prevents a collection action on a debt that is passed the SOL from being revised by any activity on the debt, including payment; and (ii) requires a debt buyer to provide a specific written notice in the initial collection communication, including a statement that the debt is time-barred and the debt collector would not sue the consumer for it. The bill is effective September 1.
On April 12, the Appellate Court of Illinois published an opinion affirming the dismissal of a consumer’s counterclaims against a lender in a lawsuit seeking to collect the consumer’s alleged debt from a store credit card. According to the opinion, in January 2017, the lender filed a small claims action seeking to collect credit card debt on which the consumer allegedly defaulted in July 2012. The consumer filed a putative class action counterclaim against the lender alleging, among other things, that the lender’s collection action violated the FDCPA and various Illinois laws because it was time-barred under the four-year statute of limitations period provided to enforce a sale of goods under Section 2-725 of the UCC. The lender moved to dismiss the counterclaims, alleging that its complaint was timely filed within the five-year statute of limitations period applicable to credit card agreements under Section 13-205 of the Illinois Code of Civil Procedure. The lower court granted the lender’s motion to dismiss, holding that the credit card agreement was governed by the five-year statute of limitations applicable to credit card agreements under Section 13-205 of the Illinois Code of Civil Procedure, rather than the four-year statute of limitations under the UCC’s sale of goods provisions. On appeal, the appellate court affirmed the lower court’s decision, rejecting the consumer’s argument that the UCC should apply to the agreement because the consumer could only use the credit card to purchase goods at a single retailer. Specifically, the appellate court held that the type of credit card was immaterial to the analysis and that Section 13-205 of the Illinois Code of Civil Procedure clearly controlled in this case because a tripartite relationship existed among the bank, the cardholder, and the merchant, and the payments made by the bank to the merchant pursuant to the cardholder agreement constituted a loan to the cardholder. As a result, the lender’s complaint was timely filed.
- Steven R. vonBerg to discuss "Non-QM market overview & the impact of QM 2.0" at the IMN Non-QM Virtual Conference
- Buckley Webcast: Looking ahead — Tighter scrutiny of deposit and payment practices
- Jeffrey P. Naimon to discuss "What have you bought non-QM post-Covid?" at the IMN Non-QM Virtual Conference
- Garylene D. Javier to moderate "Innovation in an evolving privacy landscape" at the American Bar Association Business Law Section Consumer Financial Services Committee Winter Meeting