Third Circuit Holds Discovery Rule Inapplicable to FDCPA SOL

Financial Services Law

The Third Circuit ruled that the “discovery rule” does not apply to toll the one-year statute of limitations bar for claims under the Fair Debt Collection Practices Act (FDCPA). The ruling creates a stark circuit split as the Fourth and Ninth Circuits previously held that the discovery rule does apply to the FDCPA. This makes it likely the Supreme Court will hear an FDCPA case in the next few years—a very rare occurrence.

In the Third Circuit case, the debt collector had obtained a default judgment against the debtor without the debtor’s knowledge. The debtor did not discover the existence of the judgment until more than a year after it was obtained but filed suit alleging that the obtaining of the judgment violated the FDCPA. The debtor argued that the discovery rule rendered his claim timely as he filed suit within one year after learning of the collector’s alleged actions.

The Third Circuit ruled in favor of the servicer in a classic application of the strict statutory construction favored by conservative-leaning justices. The court described two poles of statutory language often used to describe statutes of limitations. In some cases, Congress expressly provides for the statute to begin to run when “the aggrieved party knew or should have known of the injury,” in which case the discovery rule applies. At the other pole, the relevant FDCPA language provides that FDCPA actions may only be brought “within one year from the date on which the violation occurs.” 15 U.S.C. § 1692k(d).

The court held that this unambiguous language made clear that the discovery rule does not apply to FDCPA claims. The Fourth and Ninth Circuits reached a contrary conclusion by pointing to the “remedial nature” of the FDCPA and perceived congressional intent to aid consumers. The Third Circuit was not persuaded by this argument, reasoning that in the vast majority of FDCPA cases, the purported violation will be obvious to the debtor (e.g., harassing phone calls) and that cases like the one before the court would be rare and better resolved via other tolling doctrines such as equitable tolling or fraudulent concealment. The court declined to rule on those grounds, however, as the debtor plaintiff had not raised them in the trial court. The court likewise declined to rule on how the applicability of the discovery rule should be evaluated when the language is less clear than that of the FDCPA (“within one year from the date on which the violation occurs”).

To read the opinion, click here.



pursuant to New York DR 2-101(f)

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