On December 28, 2016 the CFPB filed an amicus brief with the U.S. Supreme Court in support of the individual consumer in the case of Midland Funding, LLC v. Aleida Johnson, a decision from the Eleventh Circuit that determined Midland’s filing of an accurate proof of claim in the consumer’s bankruptcy case on a time-barred debt violated the Fair Debt Collection Practices Act (FDCPA). insideARM wrote about the case on May 25, 2016 and wrote about the Supreme Court granting Certiorari on October 12, 2016.


The case involves a dispute between Aleida Johnson and Midland Funding, LLC. Midland filed a proof of claim in a Chapter 13 Bankruptcy proceeding on an account of Johnson’s that was outside the applicable statute of limitations. Attorneys on both sides of the case had filed petitions for a writ of certiorari seeking SCOTUS review.

The Question Presented

Per the amicus brief the CFPB notes the question presented on appeal is: “Whether a creditor violates the FDCPA, (15 U.S.C. 1692 et seq.), by filing an accurate proof of claim in a bankruptcy proceeding for an unextinguished time-barred debt that the creditor knows is judicially unenforceable.”

Before the Johnson case was taken up by SCOTUS, the Eleventh Circuit Court of Appeals determined that filing a bankruptcy court proof of claim on a time-barred account was an FDCPA violation.

In a similar case, Owens v. LVNV Funding, LLC, the Seventh Circuit joined with the Eighth Circuit Court of Appeals in rejecting the notion that filing such proofs of claim violated the FDCPA.

In its brief, the CFPB argues that the FDCPA prohibits a debt collector from filing a proof of claim in a bankruptcy for a debt that the debt collector knows is time-barred. Per their brief:

“Contrary to petitioner’s (Midland) argument, the Code does not authorize the filing of a proof of claim for a debt that the creditor knows is unenforceable under applicable law. The Code directs that a claim for a time-barred debt should be disallowed. A creditor that knowingly files such a claim is subject to sanctions under Federal Rule of Bankruptcy Procedure 9011, and potentially to other remedies for bankruptcy abuse. The fact that the Code contains other mechanisms designed to prevent such claims from actually being paid does not alter that conclusion.”

The CFPB also argued that because a debt collector implicitly represents that it has a good faith basis to believe its claim is enforceable in bankruptcy when it files a proof of claim, the filing is misleading and unfair in violation of the FDCPA when the collector knows the claim is time-barred and therefore unenforceable in bankruptcy. Per the brief:

“When a debt collector knows that a claim is time-barred and therefore unenforceable in bankruptcy, the filing of a proof of claim is misleading and unfair, in violation of the FDCPA.”

insideARM Perspective

Our perspective on this issue has not changed since our October, 12, 2016 article. SCOTUS agreeing to review this case is a good development; the issue needs resolution.

An eventual ruling from SCOTUS should provide clarity to the ARM industry and consumers alike.  The CFPB position on the issue is not surprising.


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Tags: CFPB