Banking and Finance Law Daily Collection letter for time-barred debt not false, deceptive, or misleading
Thursday, December 19, 2019

Collection letter for time-barred debt not false, deceptive, or misleading

By Thomas G. Wolfe, J.D.

While time-barred debts are not enforceable in court, Congress could have prohibited, or otherwise restricted, attempts to collect time-barred debts, but it has not done so.

A debt collector is entitled to collect a lawful, outstanding debt even if the applicable statute of limitations has run, so long as the debt collector does not use false, deceptive, or misleading methods to collect the debt and otherwise complies with legal requirements, including those set forth by the Fair Debt Collection Practices Act, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit has held. In upholding a summary judgment in favor of the debt collector, the panel determined that the collection letter’s statute-of-limitations disclosure would not mislead the "least sophisticated debtor," and was not deceptive or misleading for not including a warning about the potential for the pertinent statute of limitations being revived. While Congress could have explicitly prohibited or otherwise restricted debt collectors from attempting to collect time-barred debts, it has not done so, the Ninth Circuit panel noted (Stimpson v. Midland Credit Management, Inc., Dec. 18, 2019, Ikuta, S.).

The plaintiff debtor, who had not paid off the outstanding balance on his credit card, made his last payment on the account on Dec. 12, 2008. In keeping with the credit card agreement that called for Nevada law to govern the credit card account, the applicable Nevada six-year statute of limitations was triggered to expire on Dec. 12, 2014, for any recovery on the debtor’s account. Meanwhile, defendant Midland Funding, LLC, a debt collector, purchased the debtor’s account from the creditor.

Collection letter. Later, in March 2017, Midland Credit Management, Inc., a Midland affiliate servicing the account, sent the debtor a letter indicating that his account balance was $1,145.60. The upper right portion of the face page of the letter contained a statement: "Offer Expiration Date: 04-27-2017." The middle of the same page contained the following statement: "Available Payment Options. Option 1: 40% OFF. Option 2: 20% OFF Over 6 Months. Option 3: Monthly Payments As Low As: $50 per month. Call today to discuss your options and get more details." Immediately beneath that statement of the available options, the letter characterized the benefits of paying the debt as: (i) saving $458.24 "if you pay by 04-27-2017"; (ii) putting "this debt behind you"; (iii) receiving no more communication about the account; and (iv) "[p]eace of mind."

Further, at the bottom of the page beneath the signature of a Midland manager, the letter stated that the law "limits how long you can be sued on a debt and how long a debt can appear on your credit report. Due to the age of this debt, we will not sue you for it or report payment or non-payment of it to a credit bureau." In addition, the back of the letter indicated that "this is a communication from a debt collector" and constituted "an attempt to collect a debt." The letter also communicated that it did not contain a complete list of the rights consumers have under state and federal law.

Complaint. After receiving the collection letter, the debtor brought a proposed class action against Midland in Idaho state court, claiming that Midland violated the FDCPA by attempting to collect "time-barred debts without disclosure of that fact." Midland successfully removed the case to the Idaho federal district court, and that court granted summary judgment in favor of Midland.

Federal appellate court’s decision. In reviewing the ruling of the federal trial court, the Ninth Circuit panel focused on the debtor’s contention that Midland violated the FDCPA provision mandating that "a debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt" (15 U.S.C. §1692e). The panel noted that it was called to review whether Midland’s conduct violated §1692e under the objective "least sophisticated debtor" standard.

The panel rejected the debtor’s argument that the letter was deceptive or misleading because it did not specifically state that the debt was time-barred as a matter of law, and that Midland’s representation that it would not sue could mean that Midland "simply decided not to sue" at that point in time. From the perspective of the panel, an unsophisticated debtor would not be misled by the letter’s language and would make logical inferences because the "natural conclusion is that the debt is time barred," and "[n]othing in the letter falsely implies that Midland could bring a legal action against Stimpson to collect the debt." Moreover, the letter did not speak of a "settlement offer," which could falsely imply that the underlying debt would be enforceable in court, the panel said.

In reviewing case law on the issue as well as statements by the Consumer Financial Protection Bureau on the type of language used in Midland’s letter, the panel concluded that "the least sophisticated debtor" would not be confused by Midland’s disclosure in its letter bearing on the applicable six-year statute of limitations.

Likewise, the Ninth Circuit panel rejected the debtor’s argument that Midland’s letter was deceptive or misleading under FDCPA §1692e because it "did not warn debtors regarding the potential dangers of making a payment on a time-barred debt." The panel acknowledged that, in some states under certain circumstances, the applicable statute of limitations "can be revived or restarted after it has expired." For instance, under Idaho law, a debtor’s partial payment on a debt "restarts the statute of limitations and thus re-establishes the creditor’s right to enforce the debt in court." In contrast, under Nevada law, "a partial payment on a time-barred debt does not revive the statute of limitations." However, "nothing in the FDCPA requires debt collectors to make disclosures that partial payments on debts may revive the statute of limitations in certain states," the panel asserted.

Further, the panel noted that, contrary to the debtor’s faulty premise, the debtor’s debt itself was not extinguished on Dec. 12, 2014. Rather, the judicial remedy was precluded on that date. Ultimately, the panel rejected the debtor’s argument that a letter is somehow deceptive or misleading "if a debt collector tries to persuade debtors to pay what they owe. Congress could prohibit, or otherwise restrict, attempts to collect time-barred debts, but it has not done so. Instead, liability attaches under § 1692e only if a debt collection letter is false, deceptive, or misleading." The debtor failed to establish this, the panel ruled.

The case is No. 18-35833.

Attorneys: Ryan Ballard (Ballard Law, PLLC) for Barry Stimpson. Joshua C. Dickinson (Spencer Fane LLP) and Lyle J. Fuller (Fuller & Fuller, PLLC) for Midland Credit Management, Inc. and Midland Funding, LLC.

Companies: Midland Credit Management, Inc.; Midland Funding, LLC

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