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Offer to “Resolve” Time-Barred Debt Violates FDCPA

A collection letter offering a debtor help to “resolve” a time-barred debt violated the Fair Debt Collection Practice Act, the U.S. Court of Appeals for the Eleventh Circuit recently determined. The letter was “false, deceptive, or misleading” because without a disclosure that the debt was time-barred, an unsophisticated consumer could believe that the debt was legally enforceable, even if litigation was not threatened.

LVNV Funding, LLC purchased the time-barred debt in 2015 years after it was charged off by the original creditor in 2007. LVNV retained debt collector Malcolm S. Gerald and Associates to collect the debt on LVNV’s behalf. Malcolm mailed a collection letter to the debtor that offered “to help [the debtor] resolve [his] delinquent account with LVNV.” The letter contained a disclosure that it was a communication from a debt collector and an attempt to collect a debt. The letter did not, however, disclose the fact that that debt was time-barred and legally unenforceable.

After receiving the letter, the debtor filed a putative class action against LVNV and Malcolm asserting claims under the FDCPA and state consumer protection laws. The district court dismissed the case, holding that the letter did not violate the FDCPA because it did not contain a threat of legal action. The court distinguished cases holding that an offer to “settle” a time-barred debt is an implicit threat to sue that violates the FDCPA. According to the lower court, an offer to “resolve” was not the same as an offer to “settle.”

A threat to sue on a time-barred debt is uniformly held to violate the FDCPA. But to what extent does a more subtle offer to resolve state a claim under the FDCPA? An express threat of litigation is not required in at least the Third, Fifth, Sixth, and Seventh Circuits, where an offer to “settle” a time-barred debt has been found to violate the FDCPA.

The Eleventh Circuit saw no reason to distinguish an offer to settle from an offer to resolve as the lower court had done. The offer in this case urged the debtor to “take advantage” of the reduced-payment offer and warned that the offer might not be made. An unsophisticated consumer could mistakenly believe from the language used in the letter that the debt was legally enforceable, a belief reinforced by the payment deadline. It also was reinforced by the ultimatum and the potentially negative consequences of the debtor’s failure to timely act upon the offer.

However, the circuit court refused to adopt a per se rule that any attempt to collect a time-barred debt is actionable under the FDCPA. A creditor is entitled to seek the voluntary payment of time-barred debts, the court noted. Further, a creditor can avoid liability under the FDCPA if an offer to settle or resolve is tempered by a disclosure that the debt is legally unenforceable and repayment is voluntary.

Holzman v.Malcolm S. Gerald & Associates, Inc., No. 16-16511, 2019 U.S. App. LEXIS 10122 (11th Cir. April 5, 2019)