Failure to Inform a Consumer That a Partial Payment Revives an Out-of-Stat Debt Could Be an FDCPA Violation, Court Says

A U.S. District Court Judge in Kansas refused to dismiss a lawsuit that alleged that a debt collection letter was false and/or misleading because it failed to inform the consumer that a partial payment would revive the statute of limitations on otherwise time-barred debt.

The case, Yang v. Midland Credit Management, Inc., 15-2686, 2016 WL 393726 (D.Kan., Feb. 2, 2016) involved the following set of facts:

On January 2, 2015, Defendant, in an attempt to collect a debt, sent a debt collection letter to Plaintiff. The letter stated “[s]pecial offers are now available to help you resolve your unpaid T-Mobile account, which is owned by MIDLAND FUNDING, LLC (“MCM”). Select one of the three options below and get closer to having one less thing to worry about.” The letter showed Plaintiff’s balance as $1,629.69. The options included one discounted payment in full of $651.87, six monthly payments of $217.29, or to call an account manager for more options. The letter further stated:

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. If you do not pay the debt, we may continue to report it to the credit reporting agencies as unpaid.

*If you pay your full balance, we will report your account as Paid in Full. If you pay less than your full balance, we will report your account as Paid in Full for less than the full balance.

The state of Kansas has a revival statute, which states that a partial payment on a debt revives the statute of limitations, regardless of how long the debt has been stale. Plaintiff alleged that if she made one of the six partial payments as offered in the letter, the effect of such payment would revive the statute of limitations.

Plaintiff claimed that MCM’s letter violated two sections of the Fair Debt Collection Practices Act (“FDCPA”): 1) §1692e(2)(A)’s prohibition on the “false representation of . . . the character . . . or legal status” of Plaintiff’s debt; and 2) § 1692e(10)’s prohibition on the “use of any false representation or deceptive means to collect or attempt to collect any debt.”

The case came before the court on MLM’s Motion to Dismiss Plaintiff’s Petition under Fed. R. Civ. P. 12(b)(1) [ Defendant argued the case was not ripe for adjudication] and (b)(6) [Defendant argued the case failed to state a claim for relief under the FDCPA.]

The court’s Memorandum and Order can be found here.

The court rejected MLM’s “ripeness” argument writing:

Defendant does not cite to, nor has the Court found authority to support the claim that a consumer must act upon a debt collector’s representations or deceptive acts in order to suffer an injury. In fact, such a requirement would appear to undermine the deterrent effect of strict liability. Defendant’s motion is denied on these grounds.

The court also rejected MLM’s “failure to state a claim upon which relief may be granted” argument, first discussing and applying the “least sophisticated consumer” standard to plaintiff’s claims, then determining that a motion to dismiss was not the appropriate procedure to decide the issue. The court felt that the matter was best resolved through a future motion for summary judgment. The court wrote:

The summary judgment stage is more appropriate to address the question of whether the letter violates § 1692e(2)(A) or (10) because Defendant’s letter does not inform Plaintiff that any partial payment would result in the revival of Plaintiff’s debt under Kansas law. Accordingly, the Court denies Defendant’s motion to dismiss under Rule 12(b)(6), and invites the parties to instead address in cross-motions for summary judgment the issue of whether the letter sent by Defendant violates § 1692e as a matter of law.

insideARM Perspective

The case is an interesting procedural discussion. It is not a resolution of issue presented. MLM sought to bring an end to the litigation through a motion to dismiss.  However, the court felt that the motion to dismiss the case under Fed. R. Civ. P. 12(b)(1) and (b)(6) was not the appropriate method to resolve the matter. Instead, the parties are directed to bring cross-motions for summary judgment, allowing the court to decide as a matter of law whether the letter violates the FDCPA.

insideARM will continue to monitor the litigation and report on the ultimate outcome.