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. § 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
.