Know Your Rights

Seventh Circuit Rules That Collecting Time-Barred Debts May Violate the FDCPA

In a recent opinion decided by the United States Court of Appeals, the Seventh Circuit held that sending collection letters to debtors for collection of a time-barred debt is considered a violation of the Fair Debt Collection Practices Act ("FDCPA"), without including a statement in the letter that debt is no longer enforceable under the statute of limitations.
In two cases, McMahon v. LVNV Funding, LLC and Delgado v. Capital Management Services, which were consolidated on appeal, the Seventh Circuit reviewed two collection letters that were sent to debtors for collection of a debt that was well beyond the statute of limitations.  In both of the letters, the collection agencies attempted to collect the debt without making mention that the debts were time-barred and the collection agencies could no longer file suit against the debtors to receive payment.  The collection letters offered the debtors an opportunity to settle the debt which suggested the debts were still enforceable and according to the Seventh Circuit was misleading and in violation of the FDCPA.  Furthermore, if a debtor accepted an offer he or she was at risk of resetting the statute of limitation or bringing the debt back to life, so to speak.  This risk caused the Seventh Circuit to hold that under the "unsophisticated consumer" standard of review the collection letters sent to the debtors violated the FDCPA by making a "false, deceptive or misleading representation or means in connection with the collection of any debt" and the use of "unfair or unconscionable means to collect or attempt to collect any debt."  15 U.S.C. ยง 1692e, 1692f.

The Seventh Circuit's finding is inconsistent with the opinions held by other circuits.  Both the Third and Eighth Circuits found that sending collection letters for time-barred debts does not violate the FDCPA unless the letter specifically states that the collection agency may take legal action against the debtor for failure to make a payment.  The Seventh Circuit did make it clear in its opinion that the collection of time-barred debts is not an automatic violation of the FDCPA but could raise a red flag as it crosses over into a gray area that may or may not violate the statute.  Bottom line, debt collectors need to mind their actions when collecting a time-barred debt.

If you believe you are the victim of a violation of the Fair Debt Collection Practices Act and would like the advice or assistance of counsel, contact SmithMarco P.C. for a completely free case review.

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