The CFPB and FTC jointly filed an amicus brief urging the United States Court of Appeals for the Seventh Circuit to uphold a district court’s decision denying defendant’s motion to dismiss a class action alleging violations of the Fair Debt Collection Practices Act. Defendant, a debt collector, sent plaintiff a "dunning" letter seeking to collect a debt by offering plaintiff a settlement. Plaintiff filed a class action alleging that by failing to disclose that the debt was time-barred and by offering to settle the debt, defendant violated the FDCPA’s prohibition on providing false and misleading representation in the collection of the debt. Defendant moved to dismiss the class action arguing that the FDCPA does not expressly require debt collectors to disclose that a debt is time-barred, and that its letter to plaintiff did not explicitly or implicitly threaten litigation. The district court denied defendant’s motion to dismiss. Citing several reports by the FTC, the district court found that an "unsophisticated consumer" might be confused or intimidated by the letter, perceiving that refusal to settle would result in the debt collector filing suit to collect the debt. However, recognizing that other courts had held such letters did not violate the FDCPA so long as they did not constitute threatened litigation, the district court certified its decision for interlocutory review.
In their amicus brief, the FTC and CFPB argue that the FDCPA prohibits debt collectors from suing or threatening to sue on a time-barred debt. The agencies, however, push the argument further, contending that the outcome should not hinge on whether the letter threatened litigation because no threat of litigation is necessary for the letter to be deceptive. Rather, in the agencies’ view, the letter’s failure to disclose that the debt was time-barred is a deceptive omission under the FDCPA even if the letter did not threaten to sue on the debt, because it could mislead an unsophisticated consumer into thinking that a lawsuit would follow if the settlement were not accepted. Of concern to the agencies was the practical effect of such practice by debt collectors. Unsophisticated consumers, according to the agencies, "do not know or understand their legal rights with respect to time-barred debts." The deadline in defendant’s letter to plaintiff, could imply that failure to pay by the date would result in litigation. Ultimately, the agencies argued that "in some circumstances, a debt collector may be required to make affirmative disclosures in order to avoid misleading consumers."
Debt collection has been an area of concern for both state and federal regulators. Reminiscent of previous remarks, included among the "Four Ds" that the CFPB has been focused on, was the activities of debt collectors—"dead ends" identified by Director Richard Cordray as issues consumers face. Further, California has taken action to prevent such "misleading" debt collection tactics. In July 2013, the California legislature passed and the governor signed into law the Fair Debt Buying Practices Act, which, among other things, prohibits a debt buyer from initiating a suit to collect a debt if the statute of limitations on the cause of action has expired (see July 19, 2013 Alert).