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.
Here is what the recent opinion involving Allied Interstate says:
“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?