A recent decision from the United States Court of Appeals for the Seventh Circuit held that collection or “dunning” letters sent after a debt has become time-barred by the applicable statute of limitations violate the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (“FDCPA”), unless the dunning letters advise the debtor that the debt is no longer legally enforceable pursuant to the applicable statute of limitations.
In the consolidated appeals of McMahon v. LVNV Funding, LLC and Delgado v. Capital Management Services, Nos. 12-3504 & 13-2030, the Seventh Circuit examined two dunning letters that were sent to debtors well past the expiration of the applicable statutes of limitations. While the debtors at issue each had “ironclad” limitations defenses to any potential lawsuit over the time-barred debts, the dunning letters failed to give any indication that the debts were time barred; instead, the letters offered the debtors a chance to settle the outstanding debt. The Court deemed the dunning letters to be misleading in that they suggested that the debts were still legally enforceable. Moreover, the offers of settlement contained in the dunning letters put the debtors in jeopardy as the acceptance of an offer of settlement could, in certain jurisdictions, inadvertently reset the limitations period, thus making the debtors vulnerable for the full amount of the debt. Thus, the Seventh Circuit found under that Circuit’s “unsophisticated consumer” standard of review that dunning letters at issue were found to have violated the FDCPA’s prohibitions on the use of “any false, deceptive, or misleading representation or means in connection with the collection of any debt” and the use of “unfair or unconscionable means to collect or attempt to collect any debt.” 15 U.S.C. § 1692e, 1692f.
The Seventh Circuit’s holding conflicts with the positions previously taken by the Third and Eighth Circuits, where those courts have found that sending dunning letters for time-barred debts does not violate the FDCPA unless the dunning letter actually threatens litigation. See Huerta v. Galaxy Asset Management, 641 F.3d 28, 33 (3d Cir. 2011); Freyermuth v. Credit Bureau Services, Inc., 248 F.3d 767, 771 (8th Cir. 2001).
While the Seventh Circuit noted that its holding did not make the collection of time-barred debts “automatically improper” as “some people might consider full debt repayment a moral obligation,” the decision emphasizes that collecting old debts can be difficult as the collection of time-barred debts could constitute a violation of the FDCPA if “the debt collector uses language in its dunning letter that would lead an unsophisticated consumer into believing that the debt is legally enforceable, regardless of whether the letter actually threatens litigation.” Thus, debt collectors and creditors need to take greater precautions when collecting old debts so as not to risk a violation of the FDCPA. Precautions that can be instituted include: (1) determining before collection efforts are commenced whether the debt is time-barred by the applicable statute of limitations; (2) being aware of how the courts in the applicable jurisdiction have previously ruled on what constitutes a violation of the FDCPA when collecting time-barred debts; and (3) including, as suggested by the Seventh Circuit, “general language” in the dunning letters that there is the possibility that the debt being collected is time-barred.