Editor's note: An earlier version of the headline for this article read, "Oregon Court Rules in Favor of Collection Agency on Letter Clariry." insideARM apologizes for the confusion.
A recent opinion issued by the U.S. District Court for the District of Kansas in Smothers v. Midland Credit Management, Inc. (United States District Court, D. Kansas, Case No. 16-2202) granted the plaintiff’s motion for summary judgment and denied the defendant’s motion for summary judgment over the plaintiff’s allegations that defendant Midland Credit Management, Inc. (Midland) violated the Fair Debt Collection Practices Act (FDCPA) by sending a collection letter that “included false, deceptive, and misleading representations.”
Plaintiff Betty Jo Smothers owed a credit card debt to Citibank, N.A., which charged off the debt and sold it to Midland. After the statute of limitations for filing a lawsuit to collect on the debt had passed Midland sent a letter to Smothers saying the following:
“The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it.”
The letter includes an offer of “available payment options” and describes the “benefits of paying your debt” to help “put this debt behind you” and achieve “peace of mind.”
Additionally, these facts were noted:
“The letter does not threaten litigation. Moreover, defendant at all relevant times had a written policy specifying that, after a debt was out of statute, defendant would not recalculate the statute of limitations if it received a payment toward the debt–even if the law allowed revival.”
Smothers argued that she was entitled to summary judgment because the defendant “misrepresented the character and nature of the debt when it failed to disclose the revivable nature of a time-barred debt in Kansas” and “engaged in a deceptive practice when it described the benefits of a partial payment without disclosing the legal consequences of such a payment in Kansas.”
Midland argued in favor of summary judgment for itself by noting that the letter does not violate the FDCPA because the disclosure that they would not sue on the debt “was true at the time the defendant mailed the letter” and because “the disclosure would be true even if plaintiff made payments on the debt because defendant’s policies prohibited suing on time-barred debt–regardless of whether partial payment revived the statute of limitations.”
Judge Carlos Murguia noted the following:
“The question here is whether defendant’s statements that ‘the law limits how long you can be sued on a debt,’ and ‘because of the age of your debt, we will not sue you for it,’ taken in context with the rest of the letter constituted a misrepresentation.”
Looking at various previous cases dealing with instances where “some payment is worse than no payment” when “partial payment restarts the statute-of-limitations clock, giving the creditor a new opportunity to sue for the full debt,” Judge Murguia ruled that the “least sophisticated consumer most certainly would not be aware that making a payment could make the debt judicially enforceable again–particularly when the collector tells the consumer that the law limits how long she can be sued and that the collector will not sue” and is a misrepresentation of the debt’s status under the FDCPA.
Additionally, the Court held that Midland’s “offer to work with the plaintiff to devise a payment plan–without disclosing the pitfalls of making payments under the plan–is deceptive as a matter of law.”
Two weeks later, in a case with almost identical facts (Faison v. Midland Credit Management, Inc. (United States District Court, D. Kansas, Case No. 16-2285) Judge Murguia again granted a plaintiff’s motion for summary judgment and denied the defendant’s motion for summary judgment over the plaintiff’s allegations that defendant Midland Credit Management, Inc. violated the Fair Debt Collection Practices Act (FDCPA) by sending a collection letter that “included misleading and deceptive representations.”
Letters on Out-of-Statute debt are always problematic. insideARM has written about other similar cases in area. See the insideARM FDCPA Resources page and the FDCPA Case law grid (updated on a monthly basis thanks to Joann Needleman of the Clark Hill law firm) for links to other cases and insideARM articles about this issue.
This result suggests that firms sending letters to consumers about out-of-stat debt must explain fully the potential legal ramifications of making a payment on such a debt.