Out of Stat Debt Case Offers Three Lessons to Collectors

A Magistrate for the United States District Court in Indiana has recommended that a motion to dismiss a Fair Debt Collection Act (FDCPA) case be denied where a collector, sued for a false, misleading, or unfair attempt to collect a debt, argued that case should be dismissed because the letter in question included partial language from a prior Federal Trade Commission (FTC) Consent Order. The case is Pittman v. Jefferson Capital Systems, LLC, et.al. (Case No 16-cv-3250, U.S. District Court, S.D., Indianapolis).

A copy of the Magistrate’s Report and Recommendation can be found here.

Background 

Plaintiff incurred a debt to Keybank. The bank then sold the debt to Defendant Jefferson Capital Systems (Jefferson), which in turn enlisted Defendant First National Collection Bureau (FNCB) to collect the debt. 

FNCB sent a letter (the Letter), to the plaintiff in June 2016.

The Letter included the following language:

The law limits how long you can be sued on a debt. Because of the age of your debt, out client will not sue you for it. In circumstances, you can renew the debt and start the time period for the filing of a lawsuit against you if you take specific actions such as making certain payment on the debt or making a written promise to pay. You should determine the effect of any actions you take with respect to this debt. 

In order to aid your financial situation, as may be necessary, we could set up your account on a monthly payment plan.

We would like to extend the following discounted offer:

An approximately 80 % discount payable in 4 payments . . . .

We are not obligated to renew this offer.

Per the Magistrate’s Report and Recommendations:

“At the time FNCB sent the letter, the statute of limitations had run, meaning that Defendants could not sue to collect the debt. Moreover, the debt could not in the ordinary course be included on Plaintiff’s credit report because of its age.”

Plaintiff filed suit in November 2016, alleging that the Letter constitutes a false, misleading, or unfair attempt to collect a debt in violation of the FDCPA. Plaintiff’s claims rest primarily on two theories: that the Letter falsely implies that paying the debt would somehow aid Plaintiff’s financial situation and that Defendants’ decision not to sue for the time-barred debt is a matter of choice.

Defendants jointly moved to dismiss Plaintiff’s Complaint for failure to state a claim. Defendants contended that the Letter used judicially-approved language from a consent decree; that the language is not otherwise misleading as to the possibility of a lawsuit or potential financial benefit.

Plaintiff argued that the Letter did not mirror the Consent Decree and that even if it did, such would not be binding upon this Court. Plaintiff also argued that an unsophisticated consumer may find the Letter misleading as to the possibility of a financial benefit, such as an improved credit rating, from paying the stale debt.

The Magistrate’s Report and Recommendation 

The Report and Recommendation was authored by Mark J. Dinsmore, United States Magistrate Judge for the Southern District of Indiana. Judge Dinsmore wrote: 

As a general rule, the misleading or unfair nature of a collection letter is “a question of fact,” Zemeckis v. Global Credit & Collection Corp., 679 F.3d 632, 636 (7th Cir. 2012), and courts are expected to “tread carefully before holding that a letter is not confusing as a matter of law . . . because district judges are not good proxies for the unsophisticated consumer whose interest the statute protects,” McMillian, 455 F.3d at 759. “Nevertheless, a plaintiff fails to state a claim and dismissal is appropriate as a matter of law when it is ‘apparent from a reading of the letter that not even a significant fraction of the population would be misled by it. 

In January 2012, the FTC entered into a Consent Decree with a debt collector in an FDCPA case in the Middle District of Florida (United States v. Asset Acceptance, LLC, Case No. 12-cv-00182, M.D. Fla. Jan 31, 2012). 

In relevant part, the Consent Decree provides:. . . Defendant shall make the following disclosure(s), clearly and prominent, as applicable: 

D. ...Defendant shall make the following disclosure(s), clearly and  prominent, as applicable:

2. When collecting on debt where the debt is passed the date for obsolescence . . .:

• 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, and we will not report it to any credit reporting agency.

E. Defendant shall not make any representation or statement, or take any other action that interferes with, detracts from, contradicts, or otherwise undermines the disclosures required . . . above.

Various district court opinions in the Seventh Circuit have looked to the Consent Decree as providing some guidance on what may be appropriate under the FDCPA, but those opinions recognize that consent decrees are not binding on nonparties and are frequently of limited persuasive value.” 

However, Judge Dinsmore then determined: 

“The Court need not determine whether the Consent Decree warrants any deference or weight in this case because the Letter in fact fails to replicate the language used therein. Moreover, the differences between the Letter and the Consent Decree are instructive in demonstrating why Plaintiff’s Complaint states a plausible claim to relief. Specifically, the Consent Decree included the disclosure that “we will not report [the stale debt] to any credit reporting agency.” The Letter in this case, by comparison, contains no similar disclosure and instead provides that “[i]n order to aid your financial situation, as may be necessary, we could set up your account on a monthly payment plan.” 

Judge Dinsmore moved to a discussion of the arguments presented regarding whether the language in the letter could be deemed a violation of the FDCPA. 

“Defendants do not contest Plaintiff’s argument that the Letter’s promise of “aid” connotes an improved credit score, nor do they articulate any argument that paying the stale debt would improve Plaintiff’s credit report. The Complaint thus plausibly alleges that the Letter could mislead an unsophisticated consumer into paying a stale debt under the false impression that doing so will improve her credit report.

An unsophisticated consumer may plausibly find the suggestion of a discounted offer to “aid your financial situation” in paying an unenforceable debt to be misleading and counterproductive, in which case payment really provides no aid at all.

Plaintiff’s Complaint plausibly alleges that the Letter she received could be misleading, confusing, or unfair to the unsophisticated consumer. Accordingly, the Magistrate Judge recommends that the Court DENY Defendants’ Motion to Dismiss.” 

insideARM Perspective 

This case offers three lessons to the ARM industry.

First, relying on direction in a prior FTC Consent Decree (or any Consent Decree?) is not an iron-clad defense to future FDCPA action. What is interesting about that is the numerous suggestions from CFPB Director Richard Cordray that the ARM industry should study the prior CFPB Consent Decrees for guidance on future behavior. 

Second, even if and when one chooses to rely on a prior Consent Decree, it behooves one to EXACTLY mirror language from the prior Consent Decree. In this case Judge Dinsmore ruled that: “The Court need not determine whether the Consent Decree warrants any deference or weight in this case because the Letter in fact fails to replicate the language used therein.” 

Third, collecting on Out-of-Stat debt continues to be a potential landmine for collectors.