Banking and Finance Law Daily 'Careful and deliberate ambiguity' results in debt collection act violation
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Thursday, March 30, 2017

'Careful and deliberate ambiguity' results in debt collection act violation

By Richard A. Roth, J.D.

A debt buyer’s attempt to collect a 20-year-old balance due on a credit card the consumer never used violated the Fair Debt Collection Practices Act, the U.S. Court of Appeals for the Seventh Circuit has decided. The dunning letter’s disclosures about the effects of the statute of limitations, which the court termed "careful and deliberate ambiguity" and "carefully crafted language, chosen to obscure from the debtor that the law prohibits the collector from suing to collect this debt or even from threatening to do so," violated the FDCPA prohibition on false, deceptive, or misleading representations, the court said (Pantoja v. Portfolio Recovery Associates, LLC, March 29, 2017, Hamilton, D.).

According to the opinion, the consumer applied for and was given a credit card in 1993. He never charged anything using the card, but Capital One, the card issuer, assessed activation fees, annual fees, and late fees that totaled more than $1,900 before it sold the account to Portfolio Recovery Associates for collection.

Collection letter disclosures. No matter what statute of limitations applied to the account, it had expired, the court made clear. The problem, and the danger to the consumer, was that a new statute of limitations would begin if the consumer made a payment on the account, or even agreed to make a payment.

The demand letter told the consumer that "Because of the age of your debt, we will not sue you for it and we will not report it to any credit reporting agency." It also offered the consumer three payment plans, each of which would have totaled substantially less than the full amount that was claimed. The appellate court focused on the language about the age of the debt, finding that it violated the FDCPA in two ways.

New statute of limitations. First, the court said, the collection letter did not make clear, or even hint, that any action by the consumer to settle the debt could revive the collector’s ability to sue. No matter what the precise terms of the relevant state law might be, anything the consumer did to settle the debt would forfeit the absolute protection that he had under the statute of limitations. Failing to warn the consumer of the risk made the collection letter misleading and deceptive, the court said.

Even if accepting one of the settlement offers made the consumer liable only for the agreed-upon reduced amount, his situation would have been worsened, the court made clear.

The FDCPA did not prevent a debt collector from asking a consumer to pay a stale debt out of a sense of moral obligation, the court conceded. However, any language used in an attempt to lure a consumer away from the absolute protection of the statute of limitations had to be "clear, accessible, and unambiguous to the unsophisticated consumer." The language of this letter did not meet that standard.

Possibility of suit. Second, Portfolio Recovery’s collection letter also gave the impression that it had chosen not to file a collection suit, which was quite different from saying that it was legally barred from suing, the court said. That also made the letter deceptive and misleading.

The letter’s language had its origin in a Federal Trade Commission consent decree under which a different debt collector agreed to tell consumers: "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." However, Portfolio Recovery’s decision to omit the first sentence would leave a consumer to wonder whether the company could have sued but had chosen not to do so.

In some cases, evidence like a consumer survey is needed to show that potentially deceptive language actually could mislead an unsophisticated consumer, the FDCPA benchmark, the court said. On the other hand, "Where the FDCPA requires clarity, however, ambiguity itself can prove a violation."

Portfolio Recovery’s letter was "an example of careful and deliberate ambiguity." The only reason the company would have settled on that specific language was the expectation that "at least some debtors will misunderstand and will chose to pay on the ancient, time-barred debts because they fear the consequences of not doing so." Such a tactic is precisely what the FDCPA is intended to prevent.

The case is No. 15-1567.

Attorneys: Matthew Henry Hector (Sulaiman Law Group, Ltd.) for Manuel Pantoja. Joel D. Bertocchi (Hinshaw & Culbertson LLP) for Portfolio Recovery Associates, LLC.

Companies: Capital One; Portfolio Recovery Associates, LLC

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