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Offering to ‘Resolve’ a Time-Barred Debt Can Violate FDCPA Absent Disclosures

The U.S. Court of Appeals for the Eleventh Circuit recently ruled that an offer to  “resolve” a debt without disclosing its time-barred status may be deceptive or misleading under the federal Fair Debt Collection Practices Act (FDCPA) even in the absence of an express threat of litigation.

A copy of the opinion in Holzman v. Malcolm S. Gerald & Assocs., Inc. is available at:  Link to Opinion.

The letter at issue stated the debt collector wanted to “resolve” the consumer’s account by accepting a reduced amount by a specific date.  The consumer filed a lawsuit alleging the letter was false and misleading in violation of 15 U.S.C. § 1692e.

Relying on Freyermuth v. Credit Bureau Services, Inc., 248 F.3d 767 (8th Cir. 2001), Huertas v. Galaxy Asset Management, 641 F.3d 28 (3d Cir. 2011), and Elrich v. Convergent Outsourcing, Inc., the trial court dismissed the complaint with prejudice because the letter “did not contain any language that could be interpreted as initiating or threatening legal action” on a time-barred debt.

The trial court distinguished the case from Daugherty v. Convergent Outsourcing, Inc., 836 F.3d 507 (5th Cir. 2016), Buchanan v. Northland Group., Inc., 776 F.3d 393 (6th Cir. 2015), and McMahon v. LVNV Funding, LLC, 744 F.3d 1010 (7th Cir. 2014), which held that using the word “settle” could imply an impermissible threat of litigation when used with respect to a time-barred debt.

The trial court was of the opinion that “resolve” did not rise to the same level of litigation threat as “settle.”

Violation Can Occur Without Express Threat of Litigation

On appeal, the Court was persuaded by the very decisions from which trial court distinguished the case.  Following the reasoning of those cases, the Court concluded that “an express threat of litigation is not required to state a claim for relief under § 1692e so long as one can reasonably infer an implicit threat.”

The Court noted that the deadline for the payment and the notice that there was no obligation to renew the offer heightened the possibility of such an inference.  Further, the Court was not convinced that the word “resolve” was “materially distinguishable” from the word “settle.”

Although the defendants argued it would be “untenable” to require debt collectors to “analyze and advise debtors as to the merits of any potential statute of limitations defense,” the Court saw no such burden.  Quoting Buchanan, “if a debt collector is unsure about the applicable statute of limitations, it would be easy to include general language about that possibility. . .”

Thus, in reversing the decision of the trial court on this issue, the Court held that any language that could reasonably imply the threat of litigation on time-barred debt violates the FDCPA unless accompanied by a notice that the debt is, in fact, time-barred.

NY Trial Court Dismisses Similar Claim

Another recent case on the issue presents an interesting comparison.

In Hollander v. Alliant Capital Mgmt., LLC, No. 18-CV-02808 (DLI)(VMS), 2019 U.S. Dist. LEXIS 58381 (E.D.N.Y. Mar. 31, 2019), the plaintiff argued that a collection letter violated the FDCPA by failing to disclose that the time-barred debt could not be enforced by legal action and that a partial payment might restart the statute of limitations.

The decision noted that the Second Circuit Court of Appeals has yet to address the issue of whether “time-barred” debt disclosures are required but dismissed the claim, nonetheless.

Although the FDCPA claim was premised on a debt being collected after the statute of limitations had expired, the court found that the complaint offered no factual allegations to support that conclusion because it: 1) did not state the date the debt was incurred; 2) did not state which statute of limitations applied; and 3) did not specify when the statute of limitations expired.

Therefore, the plaintiff’s claim was an “unadorned legal conclusion.”  The complaint filed with the trial court in Holzman in the Southern District of Florida similarly failed to plead those elements.

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Eric Rosenkoetter is based in Maurice Wutscher’s Austin office. For many years, he has focused his practice on various aspects of financial services law. As a litigation attorney, he has conducted every aspect of the litigation process, including countless depositions, motion proceedings, bench and jury trials, and appeals in various courts. In addition, he has significant experience as a compliance and transactional attorney, providing strategic, business growth, legislative, compliance and regulatory advice to national corporations and trade associations. For example, he has drafted consumer contracts and disclosures designed to state-specific statutory requirements, and developed “Best Practices” guides and state-by-state compliance grids, for national financial services companies. He also conducted research and crafted a metrics report for a national trade association with analysis designed to counter the claims of advocacy groups. Eric’s experience also includes working for a national corporation as Executive Counsel, Chief Compliance and Ethics Officer, and Director of Legislative Affairs, and as a federal lobbyist and Director of Government and Public Affairs for a national financial services trade association. In the government sector, Eric presided over approximately 6,000 state administrative hearings, served as a staff attorney for the Missouri Senate, and handled litigation in 33 counties as a regional managing attorney. Eric frequently speaks to audiences on topics relevant to the financial services industry and related advocacy initiatives.

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