A ruling by the Sixth Circuit Court of Appeals on Tuesday reversed a trial court's dismissal of a Fair Debt Collection Practices Act claim in Buchanan v. Northland Group Inc.
The case involved a challenge to a collection letter offering to settle a debt subject to the statute of limitations. At issue in the appeal was a district court's decision that a debt collector does not mislead a consumer, and thus doesn't violate the FDCPA, by offering debt collection settlement without disclosing that the statute of limitations for filing a lawsuit has expired.
The Sixth Circuit ruled that a settlement offer to resolve an unpaid debt at a discount without disclosing that the statute of limitations had expired could mislead a "reasonable unsophisticated consumer" into thinking the debt is enforceable in court.
The court stated in the ruling that when a "dunning letter creates confusion about a creditor's right to sue, that is illegal," under the FDCPA. The court cited the Seventh Circuit Court of Appeals decision in McMahon v. LVNV Funding LLC.
The Sixth Circuit ruled that the question of whether a letter is misleading should be determined by a jury. The court thus remanded the Buchanan case back to the trial court for further proceedings to allow the consumer to present evidence that she was misled, confused and deceived by the collection agency's letter.
Circuit Judge Kethledge, in dissent, said that only lawyers and judges would read a collection settlement offer letter like the one at issue in Buchanan as an implied threat to sue. Judge Kethledge said that, "we have no basis to read a single word 'settlement' from a lawyerly perspective and the rest of Northland's letter form an unsophisticated one. To the contrary, we are bound to apply the unsophisticated-debtor standard all the way through."
The Third and Eighth Circuits previously held that similar dunning letters don't violate the FDCPA unless litigation is threatened. But the Seventh Circuit in McMahon, and now the Sixth Circuit in Buchanan, have created a split holding that offers to settle time-barred debt may falsely suggest the debt is actually legally enforceable, according to ACA International, the largest association representing collection agencies.
"Despite the Sixth Circuits opinion that no conflict exists between the circuits as a result of its decision in Buchanan, a circuit split like this may make things ripe for an appeal to the U.S. Supreme Court. Until then, it is critical for the credit and collection industry and debt buyers alike to evaluate communications with consumers regarding out-of-statute debts in light of Buchanan and McMahon," according to ACA.
ACA last year submitted an amicus brief to the Sixth Circuit in the Buchanan appeal. The brief was filed to provide assistance and insight to the court with respect to the public-policy and due process consequences of a time-barred debt disclosure rule. ACAs amicus brief fundamentally challenged the Consumer Financial Protection Bureau's and the Federal Trade Commission's position that collectors should be required to disclose to consumers the legal enforceability of debts through lawsuits.
"Although ACA is disappointed with the Sixth Circuits ruling, it is proud of the effort put forth by its member in the lawsuit. As a result of the vigorous defense in Buchanan, the credit and collection industry has in many instances successfully defeated similar types of cases at the trial level and, thus, demands and filings of complaints alleging the theory at issue in Buchanan have diminished. Had the collection agency initially settled the Buchanan case, it would have only encouraged many more similar cases to proceed to litigation," according to ACA.