Know Your Rights

Pressuring Consumers to Settle Old Debts May Be Considered a Violation of the FDCPA

In two lawsuits consolidated by the Seventh Circuit, two collection agencies, LVNV Funding and Capital Management Services, were found to be in violation of the Fair Debt Collection Practices Act ("FDCPA") for pressuring consumers to make payment on debts that were time-barred and therefore beyond the statute of limitations.  The underlying issue, decided on appeal, was whether a dunning letter sent to debtors for collection of a time-barred debt could be misleading to unsophisticated consumers who in turn would interpret the letter to mean payment was necessary to avoid a lawsuit. 

In the first of the two cases, in 1997, plaintiff Scott McMahon received a bill from Nicor Gas which he failed to make payment on.  Fourteen years later in 2011, the debt was purchased by LVNV Funding which amounted to close to $600.  LVNV hired collection agency Tate & Kirlin to pursue payment.  Similarly, in February of 2012, Capital Management Services sent plaintiff Juanita Delgado a letter stating she owed $2,400.  The letter did not state that the debt was time-barred from enforcing the debt under Illinois' statute of limitations, as it was over eight years old, and the dunning letter also did not disclose the date the debt was incurred.  Delgado filed a complaint under the FDCPA alleging that Capital Management Services violated the statute by sending a dunning letter offering a settlement of a time-barred debt, which if she accepted, would have put her in a worse position by bringing the debt back to life.  Under the law, a time-barred debt is one which the debtor can no longer be sued for and can no longer be reported on the debtor's credit file.  However, if a payment is made on a time-barred debt, it is essentially brought back to life and the period of time in which the debt can be reported or sued on begins again.     

In response to the collection efforts of these two time-barred debts, the Seventh Circuit held that encouraging settlement of a such a debt should be considered a violation of the FDCPA.  This decision does not require any additional research to be conducted by the collection agencies, despite the fact that the information should be readily available to them.  A simple statement in the dunning letter that reads if the debt is time-barred payment is not necessary.  In summary, the court concluded that an unsophisticated consumer could be misled by a dunning letter for a timeā€barred debt that uses language such as "settle" or "settlement".

If you believe you have received communication encouraging payment of a time-barred debt and would like to speak to counsel contact SmithMarco P.C. for a free case review.

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