In two lawsuits consolidated by the Seventh Circuit, two
collection agencies, LVNV Funding and Capital Management Services,
were found to be in
violation of the Fair Debt Collection Practices Act (“FDCPA”)
for pressuring consumers to make payment on debts that were
time-barred and therefore beyond the statute
of limitations. The underlying issue, decided on appeal,
was whether a dunning letter sent to debtors for collection of a
time-barred debt could be misleading to unsophisticated consumers
who in turn would interpret the letter to mean payment was
necessary to avoid a lawsuit.
In the first of the two cases, in 1997, plaintiff Scott McMahon
received a bill from Nicor Gas which he failed to make payment
on. Fourteen years later in 2011, the debt was purchased by
LVNV Funding which amounted to close to $600. LVNV hired
collection agency Tate & Kirlin to pursue payment.
Similarly, in February of 2012, Capital Management Services sent
plaintiff Juanita Delgado a letter stating she owed $2,400.
The letter did not state that the debt was time-barred from
enforcing the debt under Illinois’
statute of limitations, as it was over eight years old, and the
dunning letter also did not disclose the date the debt was
incurred. Delgado filed a complaint under the FDCPA alleging
that Capital Management Services violated the statute by sending a
dunning letter offering a settlement of a time-barred debt, which
if she accepted, would have put her in a worse position by bringing
the debt back to life. Under the law, a time-barred debt is
one which the debtor can no longer be sued for and can no longer be
reported on the debtor’s credit file. However, if a payment is
made on a time-barred debt, it is essentially brought back to life
and the period of time in which the debt can be reported or sued on
In response to the collection efforts of these two time-barred
debts, the Seventh Circuit held that encouraging settlement of a
such a debt should be considered a violation of the FDCPA.
This decision does not require any additional research to be
conducted by the collection agencies, despite the fact that the
information should be readily available to them. A simple
statement in the dunning letter that reads if the debt is
time-barred payment is not necessary. In summary, the court
concluded that an unsophisticated consumer could be misled by a
dunning letter for a time‐barred debt that uses language such as
“settle” or “settlement”.
If you believe you have received communication encouraging
payment of a time-barred
debt and would like to speak to counsel contact SmithMarco P.C.
for a free case review.