On March 11, 2014, the Seventh Circuit ruled that settlement letters sent to debtors concerning the settlement of time-barred debt were misleading even though the letters did not threaten litigation.
The plaintiffs were both Illinois residents with outstanding debt that was subject to the state’s four-year statutes of limitations, and the collection firms named in the class action were seeking to collect on eight-year old debts. The court held that a letter seeking to settle otherwise time-barred debt could reinforce an impression that the debt was enforceable and therefore misrepresented the legal status of the debt in violation of the FDCPA.
The Seventh Circuit’s decision is notable because it conflicts with rulings from the Third and Eighth Circuits whereby similar letters were deemed compliant with the FDCPA because they did not include threats of litigation. Here, it appears that the Seventh Circuit has adopted a broader view of what constitutes misrepresentation in correspondence to debtors concerning time-barred debt whereby any communication associated with collecting time-barred debt could conceivably violate the FDCPA.
The question of whether or not letters seeking to settle time-barred debt are misleading could ultimately be resolved by the CFPB’s FDCPA rulemakings, but until further clarification from the courts or the Bureau, attempts to collect time-barred debt will remain a major source of uncertainty for collection firms.