Collector - April 2020 - 26

CFPB ADDRESSES
OUT-OF-STATUTE
DEBT
The Consumer Financial
Protection Bureau's current
proposed rule would prohibit
a debt collector from suing
or threatening to sue on a
debt if the debt collector
knows or should know that
the applicable statute of
limitations has expired.
The proposed rule didn't
provide model disclosures
for out-of-statute debt, but
earlier this year the bureau
issued a Supplemental
Notice of Proposed
Rulemaking (SNPRM)
seeking comments on any
disclosure proposal related
to the collection of out-ofstatute debt.
ACA and its members
will be able to review the
proposed rulemaking and
submit their feedback
through June 5. Learn more:
http://bit.ly/2TSXBt0.

26

the letter doesn't "tell plaintiff that the effect
of making (or agreeing to make) a partial
payment on a time-barred debt is to revive the
statute of limitations for enforcing that debt."
These new cases argue this last sentence
means debt collectors attempting to collect outof-statute debts violate Section 1692e unless
they disclose the debt is past the statute of
limitations and the impact of paying the debt.
In Daugherty v. Convergent Outsourcing,
Incorporated, 836 F.3d 507 (5th Cir. 2016);
Buchanan v. Northland Group, Inc., 776 F.3d
393 (6th Cir. 2015); and Holzman v. Malcolm S.
Gerald & Associates, Inc., 920 F.3d 1264 (11th
Cir. 2019), the 5th, 6th and 11th Circuits agree
with the 7th Circuit that the term "settlement"
could be construed by the least sophisticated
consumer as referring to litigation.
Other than the 11th Circuit in Holzman, no
other circuit court has gone so far as to require
the disclosures sought by Pantoja. Even
then, the letters before these courts sought a
settlement of out-of-statute debt. In Goodman
v. Asset Acceptance LLC, No. 18-cv-01667RM-KMT, 2019 WL 7037482 (D. Col. Dec. 20,
2019), the court found Pantoja did not apply
because the collection letter at issue did not
contain a settlement offer.
In Smothers v. Midland Credit Management,
Inc., No. 16-2202-CM, 2016 WL 7485686
(D. Kan. Dec. 29, 2016), the plaintiff argued
a debt collector was liable for not disclosing
that any partial payment toward an outof-statute debt would revive the statute of
limitations. The Smothers court concluded the
holdings in Daugherty, Buchanan, McMahon
and Magee v. Portfolio Recovery Assocs., LLC
and any of their disclosure requirements were
spurred by the debt collectors' settlement
offers. A few district courts have recently held
out-of-statute disclosures are required even
absent a settlement offer, but no circuit court
has done so yet.
To the contrary, the 9th Circuit (typically
a consumer-friendly venue) in Stimpson v.
Midland Credit Mgt., Inc., 18-35833, 2019
WL 6885508 (9th Cir. Dec. 18, 2019), held
collectors have no duty to disclose a debt's outof-statute status or the legal effect of paying
an otherwise out-of-statute debt. While the
8th Circuit has not yet addressed this precise

issue, it held in Freyermuth v. Credit Bureau
Services, Inc., 248 F.3d 767 (2001), debt
collectors do not violate the FDCPA without
an expressed threat of litigation.
The 3rd Circuit is, as usual, a confusing
place. In Tatis v. Allied Interstate, LLC, 882 F.3d
422 (3d Cir. 2018), the court found a collection
letter's use of the term "settlement" could be
interpreted by the least sophisticated consumer
as alluding to a legal obligation. At the same
time, it said, "standing alone, settlement offers
and attempts to obtain voluntary repayments
of stale debts do not necessarily constitute
deceptive or misleading practices."
It further explained its opinion did not
impose "specific mandates on the language
debt collectors must use, such as requiring
them to explicitly disclose that the statute
of limitations has run. We do not, therefore,
hold that the use of the word 'settlement' is
misleading as a matter of federal law." Thus,
debt collectors are left with a standard (for
cases filed in courts governed by the 3rd
Circuit) that says using the term "settlement"
may not result in a judgment for plaintiff, but
is enough to survive a motion to dismiss.
In most, if not all, of the recent cases filed
by Consumer Law Group, the debt collectors
did not call or send a letter to the plaintiff
consumers, prompting a visit to the website.
In each case, the consumer claims to have
visited the website solely based on finding the
debt on a credit report. More likely, consumer
firms direct improperly solicited consumers
to websites and then file suits if they find: (1)
the term "settlement;" (2) a lack of disclosures
about the time-barred nature of the debt;
and/or (3) a failure to disclose that a partial
payment restarts the statute of limitations.
These facts arguably distinguish this recent
consumer theory from Pantoja because the
collectors are not sending anything to the
consumer directly asking them to review
specific information or offering settlements.
Instead, consumers are going to collectors'
websites, reviewing a generic payment-option
screen, arguing it applies to their specific debt
because they input their account number
for payment (without making a payment),
and then filing suit even when the term
"settlement" is used nowhere on the website.

ACAINTERNATIONAL.ORG


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