CFPB Joins FTC in Amicus Brief on Debt Collection Case

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The Consumer Financial Protection Bureau (CFPB) recently joined the Federal Trade Commission (FTC) in an amicus brief filed on behalf of a plaintiff in a Fair Debt Collection Practices Act (FDCPA) case before a federal appeals court. The case concerns language used in collection letters sent on time-barred accounts.

In Delgado v. Capital Management Services, LP, et al., before the Seventh Circuit Court of Appeals, a consumer filed a class action lawsuit against the debt collection agency after receiving a settlement offer in a letter with a 45-day deadline for response.  The statute of limitations on the account had expired. While the letter did not threaten or allude to legal action, the fact that there was not language disclosing that the account was time-barred prompted the suit.

A district court agreed with the plaintiff and rejected the defendant’s motion to dismiss the case. The collection agency then appealed to the Seventh Circuit.

Relying in part on language from the FTC’s 2012 settlement with Asset Acceptance, the district court wrote, “the FTC does not view the affirmative threat of litigation as a necessary element for a consumer to be deceived or misled by a dunning letter that seeks to collect on a stale debt. Rather, taking collection action on a time-barred debt may be considered deceptive, thus necessitating the need for…disclosures to consumers regarding the age of their debts and the consequences of making payments on them.”

The FTC and CFPB naturally agree with this position in their amicus brief. While conceding that “a debt collector may seek voluntary payment of a time-barred debt without violating the FDCPA, even if the communication is silent as to the statute of limitations,” the FTC has concluded that a debt collector’s solicitation of a settlement on a time barred debt can “create a misleading impression as to the consequences of making [a] payment.”

The amicus brief does mention in a footnote that the FTC and CFPB disagree with the plaintiff’s assertion that all debt collection activity on a time-barred account is deceptive.

Since the FDCPA does not require debt collectors to disclose if an account has passed its statute of limitations, the FTC-CFPB position appears to create a position that would require amending the law or writing a new rule.

The CFPB has written or signed on to a handful of amicus briefs in debt collection cases, most notably Marx v. General Revenue Corp. which was decided by the U.S. Supreme Court earlier this year.

 

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Posted in CFPB, Collection Laws and Regulations, Debt Statute of Limitations, FDCPA, Featured Post .

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Continuing the Discussion

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  • avatar Craig Bracken says:

    So, let me see if I have this straight…
    “a debt collector may seek voluntary payment of a time-barred debt without violating the FDCPA, even if the communication is silent as to the statute of limitations,”

    But…
    “taking collection action on a time-barred debt may be considered deceptive, thus necessitating the need for…disclosures”

    Got it.

  • avatar Joel Galante says:

    As far as I can see, unless the letter specifically solicits a partial payment which would leave a remaining (legally recoverable) balance, there is no harm in asking for payment and adding a deadline to a settlement offer.

  • avatar Sisko says:

    What exactly was this “deceptive” behavior and violation of the FDCPA? As far as I can tell from reading the amicus brief, sending a collection letter without a disclosure that the debt is time-barred is considered a threat to sue by an unsophisticated consumer. And since you can’t (or are at least not supposed to) sue on a debt past the statute of limitations, there’s your deception. So simply asking someone to settle a debt is considered to be a legal action threat? Wow. Apparently there is no limit to the least sophisticated consumer test to twist logic.

  • avatar Commercial Guy says:

    Although I’m not involved in collecting out of statute consumer debt, I have to wonder how large a negative impact it would have on recoveries to include the disclosure about the debt being time-barred. Realistically, what kind of recovery rate can you expect on 6+ year old debt anyway?

  • avatar todd bean says:

    “So simply asking someone to settle a debt is considered to be a legal action threat?”

    Nice twist and the reason your industry is always getting hammered in court.

    Of course there is nothing wrong with asking somebody to settle a debt. But your industry still has to push it and then get upset when you get hammered under the LSC standard.

    If a debt is past the statute of limitations, legally, there is nothing for the consumer to worry about. Remember I’m talking legally.

    So exactly what is the purpose of a settlement that has an expiration date on a SOL debt?

    Come on, everybody and especially the LSC when they see an expiration is going to be looking for the down side of not accepting the offer and the LSC hearing that language from a debt collection letter would certaintly have the LSC confused or thinking something was going to happen after the 45 days when actually LEGALLY (not morally or whatever) the consumer is shooting themselves in the foot.

    The debt is legally worthless and if you want to tug on the morality card with the consumer then knock yourself out. That would be legal. The consumer would be an idiot to pay a junk debt buyer on a debt that the dog in the fight has long since left the fight, but it would not be illegal to pull that card.

    By setting a 45 day expiration date of the offer you are implying to the LSC that there are consequences if the offer is not accepted when actually the collector is handing the consumer the rope and seeing if the consumer will hang themselves (again legally speaking).

    Name one legit reason that a debt that is past the SOL should have an expiration date associated with the settlement offer? In fact it is insane to think that if a collector offered a 50% settlement good for only 45 days in the consumer called in let’s say 100 days that the collector is going to say nope that settlement is over and we are going to turn down your 50% payment even though we can’t legally do jack crap to you.

    We are going to let you walk out of here with your 50% in your pocket and then do what with the debt? Sell it to somebody else for 1/2 cent on the dollar losing out on that 49.5% because the consumer did not act in 45 days.

    By putting in a deadline the LSC assumes there are positive and negatives for not paying when in fact, LEGALLY speaking the consumer is making a horrible decision and throwing their money away, again legally speaking.

    Go yell all you want there is a moral obligation or the debt is still valid. Assume that argument is correct what does putting a 45 day limit have to do with that argument.

    The debt is morally owed 45 days or 445 days later according to your industry so the time frame is just trying to trick the LSC into thinking there is actually something legally more you can do when there is not.

    So it is not just a simple matter of asking somebody to pay a bill. It is a back door way of trying to threaten a consumer with a non existence negative consequence that the collector knows if they try to fit in the front door it gets them sued at the drop of the hat in a slam dunk manner so they try it this way so they can at least put a somewhat positive spin and then act confused that we are just trying to get somebody to pay a bill.

  • avatar Debt Guy says:

    “The only reason to pay back a debt is if you are forced to do so. You should try to game the system by playing victim and get the creditor or agency to pay you for daring to contact you about that money that you borrowed and never paid back. Anybody who voluntarily repays a debt just because they owe it is a chump. If there are no legal consequences for taking money from someone and not paying it back why would you?”

    - Todd “Slam Dunk” “Dog Beatin’” Bean, 2013

  • avatar Newb Collector says:

    Todd, by that logic, why couldn’t a consumer sue a debt collector over any deadline, including the deadline that is legall required for them to put on for the validation period?

    Let’s look at it this way. A debt collector sends a validation notice which says something along the lines that if you don’t dispute the account in 30 days we will assume the account to be valid. Couldn’t interpret that then to mean that the collection agency may take actions (ie file a lawsuit, credit report, arrest them and put them in jail, inflict bodily injury) that it has no intention or can’t take of taking therefore violating the FDCPA? I mean the letter doesn’t specifically say what actions would be taken, it also doesn’t say what actions wouldn’t be taken, so why couldn’t the LSC interpret the letter that way?

  • avatar Debtor Nation says:

    The logical approach would be to allow INVOLUNTARY Defaulters an option to have the debt frozen where it was at the time of the Involuntary Default, allow super low monthly repayment terms to start out (they could rise later on), and upon the restart of those payments, don’t keep grading the account as delinquent.

    That’s the real solution.

    I think the plaintiff could lose this case simply because banks reserve the right to collect any unpaid debt at any time in the future even when a debt has been “paid off” at 20% to 30% of the total due, all the debtor has to do is open a new account with that same bank in the future and the bank can garnish those deposits at any time.

    So based on that logic, the debt collection company is doing the debtor a favor, UNLESS the debtor has already paid the IRS on the “forgiven amount” factored as income.

    So the proper answer is, “I paid the IRS income tax on the forgiven amount, get lost”. And if they haven’t paid the IRS, then maybe they should pay it if they can because at some point in the future, the bank will try and get their money anyways.

    But ultimately, the solution I proposed in the first sentence is what we should all be focused on.

  • avatar Debtor Nation says:

    I am concerned that the CFPB is not doing as good of a job at actually improving how Involuntary Defaulters are being treated. As it stands right now, Strategic Defaulters are treated better by the courts, debt collectors, the banks, and judge.

    Involuntary Defaulters get the shaft from everyone.

  • avatar todd bean says:

    Newb Collector,

    Because the courts have drawn the line on over the top assumptions made by the LSC and held that those assumptions are not actionable. For example if you send me a letter and say please pay and I sue you because I felt you were going to come to my house and kill me due to that letter then I lose.

    The court would then step in and draw the line on the LSC. A consumer can’t just say it made them feel anything and then win, even if it did make them feel that way.

    You’re making my point and probably the reason Debt Guy goes right to personal attacks when you are beat on the actual substance of the debate.

    In your example there is an actual down side to what you speak of. If the consumer does not act in a certain time frame then using your example the debt collector can then assume the debt is valid.

    That is a legal right under the law and it is over the top extreme in the courts eyes for even the LSC to come up with over the top assumptions just to say they were deceived. There is still a “test” the courts use. It’s subjective so to speak but there is still a test.

    When you come to a consumer on a debt that is past the SOL, you can do nothing legally if the consumer does not want to pay and really your only card is the morality card or begging, then tacking on a deadline is deceptive to the LSC.

    The LSC has to scratch their head and say “what if” I don’t pay by the deadline. Well the what if is actually great for the consumer. What happens is legally nothing when in fact if you paid on the SOL debt legally you most likely restarted the statute of limitations and now the collector can actually come at you for the full amount and now sue you without it being an FDCPA violation.

    The reason it is a violation is it is flat out deceptive when you are dealing with a debt past the SOL to imply by way of a deadline there are positives and negatives associated with your decision when in fact the consumer is just shooting themselves in the foot, and again I’m only talking legally speaking.

    I mean there is not even ANY type of consequence a collector can come up with that a consumer not taking an offer before a deadline on a debt that is SOL that should worry the consumer.

    A SOL debt is truly the legal definition of a junk debt. You throw a deadline at the consumer basically saying act now and the LSC now says “or what” and the Court will also ask that “or what” question, and the “or what” is NOTHING and that is what makes it an FDCPA violation and that is why you have collectors like New Guy attacking me personally because he knows I’m right and he is mad that there are consumers like me out there that can fight back.

    And I can cite the case if you really need it but it is well settled that you can’t violate one section of the FDCPA to comply with another and the rock and a hard place argument under the FDCPA’S strict liability language gets you laughed out of court.

    The point you are missing is that a debt collector does not have a RIGHT to collect on the debt, they are ALLOWED, and if they can’t figure out a way to do it without violating the FDCPA even if the collection attempt is not unreasonable then they need to walk away or accept the risks.

    Risk v Reward. We can all agree if you get a consumer to pay you on a debt that is past the SOL even at an ungodly discount the reward to the collector is great.

    Well you have to roll the dice and deal with the consumers like me that are that risk and decide if it is worth it to you. At the end of the day it is a simple business decision.

    I’ve got a law firm in Arkansas that is pulling their hair out that now they are close to 50K in legal fees and they simply can’t find a winning argument forcing me to pay them.

    They took a big risk and rolled the dice and they lost. You all know the story, you side calls it a win and it was in the context of statutory damages but the collection agency legally lost.

    Now they are mad and wanting me to pay all their bills for the risk they took when all the other agencies just cut me a quick check and made there money back on the next consumer.

    Their argument is I tricked them and I have an extriodinary amount of knowledge about the FDCPA. Go on pacer they actually say that in their pleading. They are blaming me for knowing too much about the law that their client broke.

    The rolled the dice and did not figure I knew the law and now I do and I’ve run their bills over 50K and they now want their money back. Sorry, risk v reward and just like collecting on a SOL debt, risk v reward.

    It is really very simple when you look at from the actual legal standpoint. Now back to bashing me personally because you can’t dispute the substance of the argument.

  • avatar john -hilsmeyer says:

    That’s exactly it. You would need to indicate that a debtor would start the SOL over if they made a payment, other wise you could violate § 1692 e(10). The LSC wouldn’t have known that by paying even $1 on the old debt that the SOL starts over.

    1692 e(10) “The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.”

    Todd Bean is awesome!

  • avatar Commercial Guy says:

    “The (sic) rolled the dice and did not figure I knew the law and now I do and I’ve run their bills over 50K and they now want their money back. Sorry, risk v reward and just like collecting on a SOL debt, risk v reward.

    It is really very simple when you look at from the actual legal standpoint. Now back to bashing me personally because you can’t dispute the substance of the argument.”

    Still hanging on that theory, Toddie? And John, since you think Toddie is awesome, you might want to check out Pacer for the latest in his saga in Federal Court. Risk vs reward sums it up nicely, I think.

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