• Be Careful with Settlement Offers in Collection Letters
  • April 23, 2018 | Author: Christopher R. Rahl
  • Law Firm: Gordon Feinblatt LLC - Baltimore Office
  • The federal Fair Debt Collection Practices Act (FDCPA), among other things, bans all false, deceptive, misleading, and unconscionable debt collection practices by debt collectors, including any false representations concerning the “character, amount, or legal status” of a debt. Borrowers often assert FDCPA claims in connection with “out of stat” debts (debts for which the appropriate state statute of limitations period has expired). These claims sometimes arise where a collection letter suggests “settlement” of the debt or repayment of less than the amount owed, because of the alleged implication that the underlying debt is valid and enforceable and that litigation could be pursued. The primary cases in this area are in the Third and Eighth Circuits (finding no FDCPA violations) and the Fifth, Sixth, and Seventh Circuits (finding FDCPA violations). Decisions from the Third and Eighth Circuits (see our March 2015 Maryland Legal Alert for more details) held that collection letters could seek “voluntary repayment” of a debt that would be legally unenforceable in a state court action (based on a statute of limitations defense), because even unsophisticated consumers would not understand the letters as a threat to sue on the underlying debts. The Fifth, Sixth, and Seventh Circuits have come to opposite conclusions, finding FDCPA violations because collection letters that reference “settlement” offers could be viewed by unsophisticated consumers as threatening litigation. The United States Court of Appeals for the Third Circuit recently shifted to the view in the Fifth, Sixth, and Seventh Circuits and held that a collection letter that used the term “settlement offer” could mislead unsophisticated consumers into believing that the underlying debt was legally enforceable and that litigation could be pursued. The Third Circuit put much emphasis on the common dictionary definitions of the term “settlement” and noted that it was strongly linked to the conclusion and/or avoidance of litigation. This recent Third Circuit decision serves as a reminder to debt buyers and others subject to the FDCPA to avoid use of the term “settlement” or similar terms in collection letters. For more information concerning this topic, please contact Christopher Rahl.