Quick Answer: The Third Circuit ruled that debt collectors can violate the Fair Debt Collection Practices Act when offering settlements on time-barred debts, joining the Fifth, Sixth, and Seventh circuits. Debt settlement companies should disclose this risk to clients before settling expired debts to avoid potential FDCPA lawsuits.
Following decisions by the Fifth, Sixth, and Seventh circuits the Third Circuit has just issued an opinion that says if a creditor accepts a settlement offer on a time-barred debt it can violate the Fair Debt Collection Practices Act.
The issue is if, or when, a debt settlement company who participates in facilitating such a settlement will be later sued by the consumer for settling a time-barred debt.
All of these “what if” situations are totally ridiculous till they are not and you are the company sued.
Every weekday I read the enforcement actions, filings and fine print the outlets skip, and turn them into the one or two moves that actually improve your position — a rate worth moving for, a fee you can refuse, a deadline to beat before it costs you.
In the latest issue (Sep 16): The truck was $28,999 online. At the desk it’s $31,400. As of yesterday, the FTC says the ad was the lie.
I write Your Money Actually most weekdays — actionable money information you will not find anywhere else, and the small decisions that compound. It is free, I sell nothing, and I take no money from any company I write about.
Here is what the recent opinion involving Allied Interstate says:
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“This appeal arises under the Fair Debt Collection Practices Act (FDCPA or Act). The question presented is whether a collection letter sent to collect a time-barred debt that makes a “settlement offer” to accept payment “in settlement of” the debt could violate the Act’s general prohibition against “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e. We hold that it could.”
This issue may just be the type of information to clearly disclose to a new client before a time-barred debt is inadvertently settled.
“Tatis filed a class action in the United States District Court for the District of New Jersey, alleging that Allied’s letter violated the FDCPA. The complaint alleged that Tatis
interpreted the word “settlement” in the letter to mean that she had a “legal obligation” to pay the debt, and the least sophisticated debtor would hold a similar belief”
And that’s not an unreasonable assumption. Consumers are not going to know what debts are legally unenforceable and may require a defense if sued to enforce the time-barred status.
“Rather, in keeping with the text and purpose of the FDCPA, we merely reiterate that any such letters, when read in their entirety, must not deceive or mislead the least-sophisticated debtor into believing that she has a legal obligation to pay the time-barred debt.”
And there is the issue for the debt settlement company. I’d love to get your feedback in the comments below. Does the debt settlement company run into trouble when they settle a time-barred debt without the explicit approval of the consumer and not relying on a buried fine print disclaimer?
Before You Sign Anything: Run any debt relief contract through the free Contract Decoder to spot hidden fees and unfair terms. Check the company’s complaint history with the Scam-O-Meter.
Compare Your Real Options: Most debt relief companies won’t tell you about all your options — especially the ones they can’t profit from. Credit counseling has a 21-27% completion rate. Settlement resolves about 1% of enrolled debts fully. Bankruptcy has a 95% discharge rate — and protects your retirement. Take the Find Your Path quiz for a recommendation based on your actual numbers.
Hi Steve,
Thanks for the advice.
I have been researching some companies to help with my debt problems. I came acorss debt-free.today. Have you ever heard of them?
If not, are there any you recommend?
Thanks,
I’ve not heard of them. But here are some links so you can check them out.
https://getoutofdebt.org/44985/the-ultimate-consumer-guide-to-checking-out-a-debt-relief-company-before-you-sign-on-the-line
https://getoutofdebt.org/32764/how-to-check-out-a-business-or-company-to-avoid-getting-scammed-or-ripped-off