Affirming a California district court, the U.S. Court of Appeals for the Ninth Circuit held that a debt collector is entitled to collect a lawful, outstanding debt even if the statute of limitations has run, so long as the debt collector does not use means that are deceptive or misleading and otherwise complies with legal requirements.
The case centered on the language found in a collection letter the debtor claimed ran afoul of the Fair Debt Collection Practices Act (FDCPA).
What happened
Nevada resident Barry Stimpson obtained a credit card from a bank in February 2006. He charged purchases to the card but did not pay off the entire balance. Stimpson made his last payment on December 12, 2008.
In 2009, the bank sold his account to debt collector Midland Funding. Under Nevada law, the limitations period for bringing a legal action against Stimpson for recovery of the amount owed on the credit card expired on December 12, 2014, six years after his last payment.
More than two years later, in March 2017, Midland sent a letter to Stimpson indicating that his account balance was $1,145.60. The upper right-hand corner of the letter stated: “Offer Expiration Date: 04-27-2017” and the middle of the page told Stimpson: “Available Payment Options. Option 1: 40% OFF. Option 2: 20% OFF Over 6 Months. Option 3: Monthly Payments As Low As: $50 per month. Call today to discuss your options and get more details.”
Immediately below the payment options, the letter said: “Benefits of Paying Your Debt. Save $458.24 if you pay by 04-27-2017. Put this debt behind you. No more communication on this account. Peace of mind.”
Underneath the signature of a Midland employee, the letter added: “The law limits how long you can be sued on a debt and how long a debt can appear on your credit report. Due to the age of this debt, we will not sue you for it or report payment or non-payment of it to a credit bureau.”
Stimpson filed a putative class action suit, alleging that Midland violated § 1692e of the FDCPA, which provides: “A debt collector may not use any false, deceptive or misleading representation or means in connection with the collection of any debt.”
A California federal court granted Midland’s motion for summary judgment and the Ninth Circuit affirmed.
The least sophisticated debtor would not be misled by the letter, the federal appellate panel held. “The first sentence ‘draws a connection between the legal unenforceability of debts in general and [Midland’s] promise not to sue,’” the court said. “The natural conclusion is that the debt is time barred. Nothing in the letter falsely implies that Midland could bring a legal action against Stimpson to collect the debt.”
For example, the letter did not offer him a “settlement offer,” which could falsely imply that the underlying debt was enforceable in court, the panel wrote.
This conclusion was reinforced “by the fact that federal and state authorities have found substantially similar language to be appropriate (or necessary) to alert consumers about the effect of the statute of limitations,” the Ninth Circuit added. The Consumer Financial Protection Bureau required Midland to use this exact language in its debt collection communications and three different states (California, Connecticut and Texas) have enacted legislation requiring a materially similar disclosure when a debt collector attempts to collect a time-barred debt.
As for Stimpson’s argument that Midland’s letter was deceptive because it failed to warn debtors about the potential dangers of making a payment on a time-barred debt, “nothing in the FDCPA requires debt collectors to make disclosures that partial payments on debts may revive the statute of limitations in certain states,” the court said.
Nor was the panel persuaded that the statements in the letter that Stimpson claimed misrepresented the benefits of paying the time-barred debt were misleading or deceptive. His debt was not extinguished by the end of the statute of limitations, the Ninth Circuit pointed out, and even if it was unenforceable in federal court, “there is nothing inherently deceptive or misleading in attempting to collect a valid, outstanding debt.”
“In short, no part of the letter, standing alone, is deceptive or misleading,” the panel wrote. “Nor is the letter deceptive or misleading when ‘read as a whole.’”
To read the opinion in Stimpson v. Midland Credit Management, Inc., click here.
Why it matters
The court recognized that some attempts to collect time-barred debts can present risks to unsophisticated consumers, but found nothing misleading or deceptive in the statements highlighted by Stimpson or the letter as a whole, affirming summary judgment in favor of the debt collector and reminding other debt collectors that the substance of their communications must be reviewed closely to ensure compliance with the FDCPA.