On Friday, the Consumer Financial Protection Bureau (CFPB) published a supplement to its Spring 2019 notice of proposed rulemaking on third-party debt collection. The proposed supplemental rule addresses the collection of time-barred debt, which is debt that has run past any applicable statute of limitations.

Specifically, the proposed supplemental rule requires debt collectors to make certain disclosures if the collector knows or should know that a debt is time-barred. It would also require that debt collectors disclose, if applicable, that a payment made on a debt can revive the statute of limitations and enable the collector to sue to collect.

“The bureau proposes to prohibit collectors from using non-litigation means (such as calls) to collect on time-barred debt unless collectors disclose to consumers during the initial contact and on any required validation notice that the debt is time-barred,” according to a news release from the CFPB.

On May 7, 2019, the CFPB released its initial 538-page Notice of Proposed Rulemaking that would update the FDCPA generally. The proposed rule would be the first major regulatory update to the FDCPA since its enactment in 1977 and gives much-needed clarification on the bounds of federally regulated activities of “debt collectors,” as that term is defined in the FDCPA, particularly for communication by voicemail, email, and texts. Friday’s proposed supplemental rule accompanies, rather than replaces, the bureau’s existing proposed rule. Importantly, it includes four new templates for Time-Barred Debt Disclosure (Model Forms B-4 through B-7).

Troutman Sanders previously prepared a whitepaper reflecting the current best understanding of key provisions of the original proposed rule which can be found here.

The FDCPA does not generally apply to creditors collecting their own debts, and thus would not generally apply to banks or other first-party creditors; however, creditors placing debt with third-party debt collectors must monitor vendor compliance with the FDCPA.

The supplemental proposal is the result of numerous comments made on the original proposed rule concerning the collection of time-barred debt. As we have previously reported, courts across the federal circuits have struggled with what is a sufficient disclaimer regarding the statute of limitations on time-barred debt.

Comments on the supplemental notice will be due 60 days after it is published in the Federal Register, which has not yet occurred.

We will continue to provide updates to the Proposed Rule and its supplement through our Consumer Financial Services Law Monitor blog.

What is a sufficient disclaimer regarding the statute of limitations on time-barred debt?  Courts across the country continue to wrestle with this question in a variety of contexts, including oral disclosures made to consumers over the phone.  In Jones v. Synergetic Communications, Inc., the U.S. District Court for the Southern District of California dismissed plaintiff Stephen Jones’ claims that Synergetic’s disclaimer was misleading, finding that Jones had not plausibly alleged a violation of the Fair Debt Collection Practices Act.

Jones allegedly incurred a debt of $691.60 to AT&T Mobility.  Synergetic was contracted to attempt to collect the debt after Jones defaulted on his obligation.  Synergetic sent Jones a letter offering to “settle” the debt at a discounted amount of $276.64.  Because the statute of limitations had run, in the final sentence of the letter, Synergetic stated: “The law limits how long you can be sued on a debt.  Because of the age of your debt, the creditor listed on the debt will not sue you for it … .

Jones filed a class action lawsuit against Synergetic claiming that the offer to “settle” a time-barred debt violated the FDCPA because it would be deceptive and misleading to the least sophisticated consumer.  The court rejected Jones’ claim.

Jones argued that the disclaimer language stating that Synergetic “will not sue” was misleading because it implied that Synergetic had decided not to sue instead of Synergetic being prohibited from suing due to the debt being beyond the statute of limitations.  Jones relied on the Seventh Circuit case Pantoja v. Portfolio Recovery Assocs., LLC, 852 F.3d 679 (7th Cir. 2017) and its progeny. 

However, the Court distinguished Pantoja as inapposite because in that case the collection letter omitted the first part of the disclaimer and only including the second sentence.  Further, the Court looked at the letter’s language and found that the disclaimer explicitly explained that the statute of limitations had run when it stated that “[t]he law limits how long you can be sued on a debt.”

While it did not explicitly defer to an agency interpretation, the Court also noted that both the Consumer Financial Protection Bureau and the Federal Trade Commission the two agencies tasked with enforcing the FDCPA – have required debt collectors, in publicly filed consent decrees, to use the very same language that Synergetic used in the letter to Jones. 

Having evaluated the complete language of the disclaimer, the Court concluded that the letter could not have been misleading to the least sophisticated consumer, and thus such claims must be dismissed. 

This is a significant victory for the debt collection industry and describes a growing trend of district courts distinguishing the Pantoja holding as inapposite to situations in which the debt collector has included both sentences of the disclaimer.  Further, it demonstrates that courts are willing to dismiss such statute of limitations disclaimer claims on a motion to dismiss because such claims are meritless as a matter of law.  Troutman Sanders will continue to monitor this developing area of the law.

The United States District Court for the Northern District of Alabama ruled in favor of a debt collector in Swann v. Dynamic Recovery Solutions LLC, granting a motion to dismiss regarding a statute of limitations disclosure in a collection letter.

Plaintiff Susan Swann alleged violations of Section 1692 of the FDCPA for making false, deceptive, and misleading statements regarding consumer debts regarding DRS’s attempt to collect on a debt by letter.  At the time the letter was sent to Swann, the statute of limitations for filing a lawsuit to collect the debt had passed.

In the letter, DRS stated that it had been hired by the owner of the debt to collect on a past due balance on a Verizon Wireless account.  The letter detailed four methods for which Swann could “resolve” the debt.  Upon receipt of payments, the letter stated that the account would be considered “satisfied and closed.”  The letter also contained a disclaimer regarding the time-barred nature of the debt.  As part of the disclaimer, the letter stated that DRS would not sue Swann because of the age of the debt.

Swann took issue with the letter’s disclaimer which stated that the debt was time-barred and that she would not be sued.  She alleged that the disclaimer was ineffective because it failed to inform her that it could not legally sue, rather than that it had simply chosen not to do so.  Further, Swann argued that the terms “resolve” and “satisfaction” contained in the letter implicitly carried a threat of litigation.

The Court disagreed with Swann’s first argument regarding the disclaimer, holding that DRS was not required to include a disclaimer notifying her of the time-barred nature of the debt.  Rather, the Court noted, disclaimers are intended to “offset other language in the letter which may, at least impliedly, threaten litigation.”  Further, the Court found that the “will not sue” language used by the defendant is the same language that was approved by the Federal Trade Commission and the Consumer Financial Protection Bureau.  As a result, the Court found that the disclaimer did not run afoul of the FDCPA.

The Court also disagreed with the plaintiff’s argument that the words “resolve” and “satisfaction” implicitly carry a threat of litigation.  In her brief, Swann insisted that these terms would lead the least sophisticated consumer to believe that they might be sued if the debt was not paid off.  The Court cited the Third Circuit’s decision in Tatis v. Allied Interstate, LLC which held that although words like “settlement” and “settlement offer” could potentially imply a threat of litigation, general verbs like “resolve” are less likely to do so.

Generally, the issue of whether the least sophisticated consumer would interpret a collection letter as deceptive is a question for the jury, and thus not an issue that could be resolved on a motion to dismiss.  However, after drawing all reasonable inferences from the allegations in the complaint in Swann’s favor, the Court concluded that the least sophisticated consumer could not possibly view these terms as a threat of litigation.  Therefore, the Court ruled that the issue could be decided on a motion to dismiss and found that the complaint failed to allege a plausible theory of relief for the jury to consider.

The claims in this case regarding whether and how to inform consumers that an account is outside the applicable statute of limitations are being brought all over the country following the Seventh Circuit’s decision in the Pantoja case.  The lack of consistency in how courts are deciding this issue continues to flummox the collection industry, and this uncertainty is expected to continue into 2019 until these cases are taken up by more circuit Courts of Appeals.



Does a debt collector risk violating the Fair Debt Collection Practices Act if it fails to provide an oral disclosure regarding the statute of limitations during an incoming call with a consumer?  In a comprehensive opinion, a district court just issued a resounding “no.” 

In Douglas v. NCC Business Services, Inc., consumer Onesha Douglas claimed that NCC Business Services violated the FDCPA by failing to tell her on the phone that the statute of limitations had expired on her debt.  The court disagreed, holding that the debt collector was not obligated to provide an oral disclosure regarding the statute of limitations.  

Douglas had leased an apartment but failed to pay her rent, resulting in a debt of $4,032.75.  More than five years later, Douglas and Vance Dotson, a so-called “credit doctor,” called the debt collector regarding the status of the debt.  Douglas stated that she had been denied a mortgage application and was calling to get more information regarding her debt.   

On the phone call, the debt collector stated that he was a “professional debt collector” with NCC Business Services and informed Douglas that his communications with her were “an attempt to collect a debt.”  He solicited payment and asked Douglas, “How would you like to get that closed out today?”  Douglas responded by declining to close out the account because she only wanted information.  Following additional discussion, Dotson told the debt collector that he should have disclosed to Douglas that payment would renew the statute of limitations and that the debt collector could not sue Douglas because of the age of the debt.  The debt collector responded that he was not obligated to disclose such information on the phone.  

Because the Tenth Circuit had not yet ruled on a debt collector’s obligations regarding disclosure of the effect of payment on time-barred debt, the District Court surveyed circuit court opinions from across the United States.  The court looked at cases finding in favor of debt collectors, such as Mahmoud v. De Moss Owners Association, Inc., 865 F.3d 322, 333-34 (5th Cir. 2017); Huertas v. Galaxy Asset Management, 641 F.3d 28, 32-33 (3d Cir. 2011); and Freyermuth v. Credit Bureau Services, Inc., 248 F.3d 767, 771 (8th Cir. 2001).  It contrasted these cases with other cases holding in favor of consumers, such as Tatis v. Allied Interstate, LLC, 882 F.3d 422, 425, 428-30 (3d Cir. 2018); Pantoja v. Portfolio Recovery Associates, LLC, 852 F.3d 679, 684, 687 (7th Cir. 2017); Daugherty v. Convergent Outsourcing, Inc., 836 F.3d 507, 509 (5th Cir. 2016); Buchanan v. Northland Group, Inc., 776 F.3d 393, 395, 399-400 (6th Cir. 2015); and McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1020 (7th Cir. 2014).  

Having surveyed the evolving state of the law, the court distinguished the Douglas case because (1) Douglas contacted the debt collector, instead of the other way around; (2) there was no explicit or implicit threat of litigation; (3) the running of the statute of limitations under the applicable state law did not extinguish Douglas’ legal obligation on the debt; and (4) the debt collector could sue on the time-barred debt because the statute of limitations is an affirmative defense that must be raised by the debtor or it is waived.  Consequently, the court held that the debt collector said nothing that was actionably misleading under the FDCPA. 

This is an important case in the developing law regarding a debt collector’s obligation (or lack thereof) to affirmatively warn debtors regarding partial payment on time-barred debt.  This case provides a comprehensive overview of how the various circuit courts have held on this issue.  It also makes the critical distinction that the statute of limitations is an affirmative defense, meaning that it must be raised by the debtor or it is waived.  As such, it cannot prohibit a debt collector from suing on a time-barred debt because there is nothing inherently improper about such a suit—the debt is a legal obligation, which allows the debt collector to sue on it, but the debt collector may be unable to recover based upon the debtor raising the statute of limitations as an affirmative defense.  This distinction has been overlooked by some courts, resulting in one court describing it as “illegal” for a debt collector to sue on time-barred debt instead of the statute of limitations merely providing a defense against recovery on such a suit.  See Pantoja, 852 F.3d at 685.  Douglas refreshingly returns to the well-established understanding that, as a procedural rule, the statute of limitations is an affirmative defense that the debtor (defendant)—not the debt collector (plaintiff)—must raise in an action to recover for debt.