ACA International recently filed an amicus curiae brief with the Sixth Circuit Court of Appeals in the case of Buchanan v Northland Group Inc., No. 13-2523 (6thCir. filed Nov 12, 2013). At issue is the district court’s decision that a debt collector does not mislead a consumer and therefore does not violate the Fair Debt Collection Practices Act by making a settlement offer to collect a debt without disclosing that the statute of limitations for filing a collection lawsuit has expired. Buchanan v Northland Group Inc., D.C. No. 1:12-CV-1011 (W.D. Mich. Nov 7, 2013).
The Buchanan case stems from a collection letter sent by a debt collector to a consumer offering an opportunity to settle a debt after Michigan’s six-year limitations period for taking legal action to collect on the debt had passed. The consumer filed a class action complaint accusing the debt collector of violating the FDCPA.
The consumer argued that the debt collector’s statements in the letter that interest on the debt would continue to accrue and that it was “not obligated to renew” the settlement offer, along with the debt collector’s omission of a disclosure that the debt was out-of-statute, could mislead unsophisticated consumers into believing that they could still be subject to legal action. The district court disagreed with the consumer and dismissed the case.
The district court followed the Third and Eighth Circuits and district courts elsewhere by upholding the proposition that a debt collector that requests voluntary repayment of debt beyond the applicable statute of limitations does not violate the FDCPA, so long as its efforts to collect on such debt is not accompanied by actual litigation or threat, either implied or explicit, of future litigation.
The district court reasoned, “to hold that a debt collector cannot offer payment options as part of an effort to resolve outstanding debt, possibly without litigation, would force honest debt collectors seeking a peaceful resolution of the debt to file suit in order to advance efforts to resolve the debt—something that is clearly at odds with the language and purpose of the FDCPA.”
The Seventh Circuit, however, has created a split in the circuits as it held that offers to “settle” time-barred debts may falsely suggest that the debt is actually legally enforceable. (McMahon v LVNV Funding, LLC and Delgado v. Capital Mgt. Servs., LP, 744 F.3d 1010 (7th Cir. March 11, 2014.)
The Consumer Financial Protection Bureau joined the Federal Trade Commission in filing a joint amicus brief in Buchanan supporting the consumer’s position. The CFPB and the FTC argue that, “actual or threatened litigation is not a necessary predicate for an FDCPA violation in the context of time-barred debt” and “a settlement offer can erroneously lead unsophisticated consumers to believe a debt is enforceable in court even if the offer is unaccompanied by a clearly implied threat of litigation.”
ACA filed a “friend of the court” brief with the Sixth Circuit in Buchanan to provide assistance and insight to the court with respect to the adverse public-policy and due process consequences of a time-barred debt disclosure rule. ACA’s amicus brief fundamentally challenges the CFPB’s and the FTC’s position that debt collectors should be required to disclose to consumers the legal enforceability of debts through lawsuits.
In particular, ACA argues that such a rule imposes a burden and accompanying risk of liability on debt collectors that does not exist under the FDCPA. In addition, ACA explains that the disclosure requirement suggested by the CFPB will chill legitimate debt-resolution efforts by debt collectors, and may result in unsophisticated consumers being misled.
Finally, ACA also asks the Sixth Circuit to not give excessive deference to the CFPB and the FTC, as such deference may violate debt collectors’ due-process rights. Agency reports, consent decrees and amicus briefs do not provide “fair notice” to debt collectors with respect to what they need to do to comply with FDCPA regulations. Accordingly, ACA urges the Sixth Circuit to affirm the district court’s decision.
ACA’s efforts to proactively support the Industry are part of ACA’s Industry Advancement Program and are made possible by funding through ACA’s Industry Advancement Fund. Stay tuned for further developments. ACA will continue to provide more information to its members when the court issues a decision in the case.
To read more about the most recent significant judicial decisions involving the Industry, ACA members can find concise summaries of these decisions on ACA’s Industry Advancement Program Web page.