[Enigma]

How to collect a time barred debt without violating Fair Debt Collection Practices Act - Michigan Collection Law Blog published By Michigan Creditor Lawyers Nitzkin & Associates

Here is an interesting conundrum. Defendant Portfolio Recovery Associates ("PRA") purchased a time barred debt from Brewer and sent Brewer a "notice" that the debt has been transferred. PRA sent Brewer a letter that states:

"Portfolio Recovery Associates purchased the account referenced above [Capital One Bank, balance $ 2,444.20] on 03/22/07. Interest continues to accrue on this account until the account is satisfied. The stated balance includes interest as of the date of this letter. All future payments and correspondence for this account, including credit counseling service payments, should be directed to us. This account may be collected by us or by our affiliate, Anchor Receivables Management."

It also added the validation language of the FDCPA as follows:

Unless you notify this office [*4] within 30 days after receiving this notice that you dispute the validity of this debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within 30 days from receiving this notice that you dispute the validity of this debt or any portion thereof, this office will obtain verification of the debt or obtain a copy of a judgment and mail you a copy of such judgment or verification. If you request this office in writing within 30 days after receiving this notice, this office will provide you with the name and address of the original creditor if different from the current creditor.

Brewer sued PRA alleging that PRA violated the FDCPA. Brewer alleged that because the debt was barred by the statute of limitations, that PRA created a false representation by sending him a letter implying that this debt was still valid. The court dismissed Brewer's claim. If you look at the language the letter, you will see that PRA did not demand payment of the debt, but merely advised the debtor that this debt had been transferred. The court held the running of the statute of limitations does not extinguish the debt, but merely makes it unenforceable.

The court held that even the least sophisticated consumer could not infer from PRA's letter that there was a threat to sue. Hence, there was no violation of the FDCPA.

Even as a debt collector, I think that there are two major issues with the court's ruling: First, The "least sophisticated consumer" standard is an extremely low one. Without trying to be politically incorrect or offensive, suffice it to say that one might find a least sophisticated consumer living in a group home. If an individual such as this received a letter stating that the debt (presumably valid and enforceable) had been transferred and interest continues to accrue, what is that consumer supposed to garner from the letter? Hell, even if you cranked up this consumer's business saavy a notch or two so that it was on par with your I.Q., what would you think if you received this letter? I don't understand how this letter could have passed scrutiny with the FDCPA as it clearly conveys an impression that the debt is valid and enforceable. Any recipient of the letter would have to make the assumption that the collection agency sent a letter advising that a debt has been transferred because it had a valid and enforceable debt. That would just be implied. At least it would be implied to me. May I should move into a group home.

Secondly, while I understand the paper thin distinction between a debt and its enforceability, I don't understand why the court believes that such a distinction would be valid in context of an FDCPA action. After all, the FDCPA according to the official FTC commentary is to be liberally construed in favor of the consumer to effectuate its purpose. With an edict to construe the FDCPA broadly, I again, do not understand the difference between a debt that is unenforceable and debt that does not exist. In an academic setting, there is a difference; albeit thin. But c'mon, as a practical matter and against the background of the FDCPA's purpose and its construction, that difference is meaningless.

Moral of the story - you can send demand letters to collect expired debts so long as you are not demanding payment or threatening to take action to collect the debt. I still think, however, that this is risky business.

[drivel]

Originally Posted by Enigma

How to collect a time barred debt without violating Fair Debt Collection Practices Act - Michigan Collection Law Blog published By Michigan Creditor Lawyers Nitzkin & Associates

Here is an interesting conundrum. Defendant Portfolio Recovery Associates ("PRA") purchased a time barred debt from Brewer and sent Brewer a "notice" that the debt has been transferred. PRA sent Brewer a letter that states:

"Portfolio Recovery Associates purchased the account referenced above [Capital One Bank, balance $ 2,444.20] on 03/22/07. Interest continues to accrue on this account until the account is satisfied. The stated balance includes interest as of the date of this letter. All future payments and correspondence for this account, including credit counseling service payments, should be directed to us. This account may be collected by us or by our affiliate, Anchor Receivables Management."

It also added the validation language of the FDCPA as follows:

Unless you notify this office [*4] within 30 days after receiving this notice that you dispute the validity of this debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within 30 days from receiving this notice that you dispute the validity of this debt or any portion thereof, this office will obtain verification of the debt or obtain a copy of a judgment and mail you a copy of such judgment or verification. If you request this office in writing within 30 days after receiving this notice, this office will provide you with the name and address of the original creditor if different from the current creditor.

Brewer sued PRA alleging that PRA violated the FDCPA. Brewer alleged that because the debt was barred by the statute of limitations, that PRA created a false representation by sending him a letter implying that this debt was still valid. The court dismissed Brewer's claim. If you look at the language the letter, you will see that PRA did not demand payment of the debt, but merely advised the debtor that this debt had been transferred. The court held the running of the statute of limitations does not extinguish the debt, but merely makes it unenforceable.

The court held that even the least sophisticated consumer could not infer from PRA's letter that there was a threat to sue. Hence, there was no violation of the FDCPA.

Even as a debt collector, I think that there are two major issues with the court's ruling: First, The "least sophisticated consumer" standard is an extremely low one. Without trying to be politically incorrect or offensive, suffice it to say that one might find a least sophisticated consumer living in a group home. If an individual such as this received a letter stating that the debt (presumably valid and enforceable) had been transferred and interest continues to accrue, what is that consumer supposed to garner from the letter? Hell, even if you cranked up this consumer's business saavy a notch or two so that it was on par with your I.Q., what would you think if you received this letter? I don't understand how this letter could have passed scrutiny with the FDCPA as it clearly conveys an impression that the debt is valid and enforceable. Any recipient of the letter would have to make the assumption that the collection agency sent a letter advising that a debt has been transferred because it had a valid and enforceable debt. That would just be implied. At least it would be implied to me. May I should move into a group home.

Secondly, while I understand the paper thin distinction between a debt and its enforceability, I don't understand why the court believes that such a distinction would be valid in context of an FDCPA action. After all, the FDCPA according to the official FTC commentary is to be liberally construed in favor of the consumer to effectuate its purpose. With an edict to construe the FDCPA broadly, I again, do not understand the difference between a debt that is unenforceable and debt that does not exist. In an academic setting, there is a difference; albeit thin. But c'mon, as a practical matter and against the background of the FDCPA's purpose and its construction, that difference is meaningless.

Moral of the story - you can send demand letters to collect expired debts so long as you are not demanding payment or threatening to take action to collect the debt. I still think, however, that this is risky business.

This is a pretty funny quote

[jlynn]

Originally Posted by drivel

This is a pretty funny quote

But in the eyes of the law, very true.

[centex]

I seem to recall other dicta out of the Courts that has mocked those that claim "least sophisticated" status while at the same time having created a mountain of paperwork in various cases.

As to what Enigma cited from, I would opine that the comment about enforceability would be from the standpoint of the debt being enforceable via litigation. I doubt that their intent was to say the debt has simply gone away forever to be unenforceable via demand for payment (with the exception of the two states where SOL expiry actually does extinguish a debt by language in the law).

[Enigma]

Originally Posted by centex

I seem to recall other dicta out of the Courts that has mocked those that claim "least sophisticated" status while at the same time having created a mountain of paperwork in various cases.

As to what Enigma cited from, I would opine that the comment about enforceability would be from the standpoint of the debt being enforceable via litigation. I doubt that their intent was to say the debt has simply gone away forever to be unenforceable via demand for payment (with the exception of the two states where SOL expiry actually does extinguish a debt by language in the law).

In January, the IL AG filed a lawsuit against Arrow for this very issue.

From my understanding IL does not have a statute of Repose. It is as if the IL AG is try to create one via litigation.

Office of the Illinois Attorney General - Lawsuit Against Nationwide Debt Collector

[Enigma]

New York Consumer Litigation Blog Archive Collection of Time-Barred Debts Held Not A Violation of Fair Debt Collection Practices Act

Larry Brewer sued Portfolio Recovery Associates in the matter of Brewer v. Portfolio Recovery Associates, 1:07CV-113-M (W.D.Ky. 2007), alleging claims under the Fair Debt Collection Practices Act. Brewer claimed that Portfolio violated the FDCPA by sending a letter requesting payment on a time-barred debt. The U.S. District Court for the Western District of Kentucky, however, thought otherwise and dismissed the case.

On May 8, 207 Portfolio sent Brewer a letter that said as follows:

Portfolio Recovery Associates purchased the account referenced above [Capital One Bank, balance $2,444.20] on 03/22/07. Interest continues to accrue on this account until the account is satisfied. The stated balance includes interest as of the date of this letter. All future payments and correspondence for this account, including credit counseling service payments, should be directed to us. This account may be collected by us or by our affiliate, Anchor Receivables Management.

Brewer maintained that enforcement of the alleged debt is barred by the statute of limitations and Defendant “in an unfair and deceptive trade practice and in violation of the FDCPA misrepresented the legal status of the debt and attempted to deceive Brewer in paying an alleged debt that is no longer a legally enforceable debt.”

The court, however, pointed out that the running of the statute of limitations did not extinguish the debt, but merely the ability to collect on it. It also pointed out that because the running of the statute of limitations does not extinguish a debt, courts have generally held that absent a threat of litigation or actual litigation, there is no FDCPA violation in attempting “to collect on a potentially time-barred debt that is otherwise valid.” Freyermuth v. Credit Bureau Services, Inc., 248 F.3d 767, 771 (8th Cir.2001); Johnson v. Capital One Bank, 2000 WL 1279661, *2 (W.D. Tex. May 19, 2000); Shorty v. Capital One Bank, 90 F. Supp. 2d 1330, 1332 (D. N.M. 2000); Beattie v. D.M. Collectors, Inc., 754 F.Supp. 383, 393 (D. Del. 1991). See also Harvey, 453 F.3d at 332 (recognizing this line of case law without expressing an opinion on this question). “However, where a debt collector threatens to sue on a debt it knew was time-barred by the statute of limitations, a violation of the FDCPA will lie.” Gervais v. Riddle & Associates, P.C., 479 F. Supp. 2d 270, 273 (D. Conn. 2007).

Therefore, the decision rests upon the fact that at no time in the letter did Portfolio threaten legal action; had it done so, Mr. Brewer’s rights would have been violated. The Court did not find a threat to sue when reading the letter from the standpoint of the the least sophisticated debtor perspective.

But isn’t that the entire point of a collection letter? Does it not say to the recipient, “Pay us or we’re going to do nasty stuff to you?” If not, then there is no purpose to such a dunning letter at all.

In sum, the court here got it wrong. Really, really wrong.

[hannah]

If Brewer would have just waited awhile, PRA would have racked up other violations he could have sued over. Dumb to go to court on this issue only.

[Pale Rider]

Originally Posted by centex

I seem to recall other dicta out of the Courts that has mocked those that claim "least sophisticated" status while at the same time having created a mountain of paperwork in various cases.

LSC does not apply to the individual. It applies to the situation. The party can be the most sophisticated consumer, and the standard will still apply. It is a violation of what would be confusing or misleading if it fell in the hands of an LSC, not if the current party is an LSC. At least from what I have read anyway.