On October 4, 2017, a federal judge in Washington denied a debt collector's motion to dismiss for failure to state a claim in a proposed putative class action case that alleged defendant's lack of disclosure on time-barred debts violated the Federal Debt Collection Practices Act (FDCPA), 1692 et seq. The case is Bereket v. Portfolio Recovery Associates, LLC, et al. (Case No. 17-cv-0812, U.S.D.C., Western District of Washington).
The court issued a Memorandum Decision and Order, a copy of which can be found here.
Six years after the last payment/activity on the debt referenced in the letter, defendant sent a settlement letter to plaintiff offering a number of different payment options. The letter stated, "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." In the Complaint, plaintiff alleged that this letter violated the FDCPA as "Defendant fails to inform the Plaintiff that should he choose one of the payment plans offered it may re-start the statute of limitations, which may expose the Plaintiff to future litigation for this debt."
Defendant brought a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief may be granted.
The Court's Order
The court denied defendant's motion to dismiss.
The court briefly addressed several arguments defendant made in its motion to dismiss, but focused the majority of its analysis on defendant’s argument that, as a matter of law, it did not violate the FDCPA by failing to advise plaintiff of the potential legal consequences of partial payment. The defendant offered two primary arguments in support of its position:
- It had no duty to advise plaintiff of the possible legal consequences of his actions.
- Under Washington law, partial payments would not have restarted the statute of limitations.
The court rejected both arguments. With respect to defendant’s first argument, the court emphasized a recent summary from a decision in the Eastern District of California that the Federal Trade Commission and Consumer Financial Protection Bureau encouraged any collection of time-barred debt to inform a consumer of the consequences of partial payment, in addition to disclosing that a collector cannot sue to collect the debt.
Regarding the defendant’s second argument, the court confirmed that based on the facts of the case, a partial payment on the debt could open the plaintiff to litigation whereas no payment would not. Based on its review of state law, the court heavily relied on the Seventh Circuit’s decision in Pantoja v. Portfolio Recovery Assocs, LLC, 852 F.3d 679 (7th Cir. 2017). (See insideARM's previous analysis regarding the Pantoja case) and concluded that plaintiff had sufficiently asserted that defendant’s failure to alert the consumer that a partial payment may restart the applicable statute of limitations violated the FDCPA.
Collection of time-barred debt continues to be a heavily litigated issue. While not universal, there is a growing consensus of case law that an Out-of-Stat disclosure should inform a consumer that a debt cannot be sued on and mention the consequences of making a partial payment or written acknowledgement. The Consumer Financial Protection Bureau also has collection of time-barred debt as a priority issue, and we suspect will attempt to address this issue in it notice of proposed rulemaking.
insideARM maintains a free FDCPA resources page to provide the ARM community a destination for timely and topical information on the Fair Debt Collection Practices Act (FDCPA). The cornerstone of the page is a chart of significant FDCPA cases (kept up to date thanks to Joann Needleman of Clark Hill). Where insideARM has already published a story on the case, we provide a link. That chart contains several prior cases involving letter language on Out-of-Stat debt.