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Weighing In On Time-Barred Debts

On Behalf of | Jul 10, 2014 | Consumer Protection

The United States Supreme Court may need to give its opinion on
the collection of time-barred
debts under the Fair Debt Collection Practices Act (“FDCPA”) as
more circuits disagree and continue to widen the split.  In a
recent opinion by the Seventh Circuit, the Court held that it is a
violation of the FDCPA to offer a settlement to a debtor of a time-barred
debt even when litigation is not threatened.  This opinion
is in direct contradiction to the Third and Eighth Circuits who
held that simply collecting on a time-barred debt does not amount
to an
FDCPA violation
without threatening to file suit against the

In each of the three Circuits, all of the cases involved a dunning
letter sent to the consumer debtors attempting to collect a debt
that was beyond the statute
of limitations
.  None of the letters threatened to file
suit against the consumers, however neither did the letters
disclose the fact that the debt was outside the period of recovery
or time-barred.  Under the FDCPA, a collector cannot use “any
false, deceptive, or misleading representation or means in
connection with the collection of any debt,” including falsely
representing the character, amount, or legal status of the debt;
1692e(2)(A); threatening to take action that cannot legally be
taken,1692e(5); or using any false representation or deceptive
means to collect or attempt to collect any debt, 1692e(10).
15 U.S.C. Sec.1692e.

The Seventh Circuit, in
McMahon v. LNLV Funding, LLC and Delgado v. Capital Management
Services, LP, held that misleading a consumer into paying a debt
even when litigation is not threatened goes to the very core of the
statute and should be considered a violation of the law.  On
the contrary, the Third Circuit, in Huertas v. Galaxy Asset
Management, held that the debtor was obligated to pay the debt and
just because it was outside the statute of limitations for filing
suit was not a sufficient reason to cease collection efforts.
Similarly, the Eighth Circuit held in Freyermuth v. Credit Bureau
Servs.,Inc., that without a threat of litigation against the
consumer debtor, collection of a time barred debt was not a
violation of the FDCPA on its face.

So with the two to one split before the Supreme Court, it may be
their opportunity to hand down an opinion.  Does collection of
a time-barred debt even without threatening litigation go against
the purpose of the FDCPA or should collection agencies be able to
collect legitimate debts that are outside the statute of
limitations without notifying the consumer that they can no longer
file suit and can no longer report the debt to the credit reporting

If you are in need of assistance relating to the FDCPA and would
like to speak with a licensed attorney, contact SmithMarco P.C., for a completely
free case review.