6th Cir. Says Collection Offering to Settle Time-Barred Debt Without Disclosing that Debt Was Time Barred Violated the FDCPA

In Buchanan v. Northland Group, Inc.,— F.3d —-, 2015 WL 149528 (6th Cir. 2015), the Court of Appeals for the 6th Circuit found a debt-buyer’s collection deceptive because it did not disclose that the statute of limitations on the debt had run and, if the debtor made a partial payment, it would commence a new statute of limitations.

The “settlement offer” did not disclose two things. It did not say that the Michigan six-year statute of limitations had run on the debt, which would have provided a complete defense to any lawsuit to recover the money. See Mich. Comp. Laws § 600.5807(8). And it did not say that a partial payment on a time-barred debt—if, say, Buchanan had not accepted the offer but instead paid $500 to decrease her balance—restarts the statute-of-limitations clock under Michigan law. See Yeiter v. Knights of St. Casimir Aid Soc’y, 461 Mich. 493, 607 N.W.2d 68, 71 (Mich.2000). . . . In considering whether this letter creates a cognizable claim, we agree with two premises of Northland’s argument (and the district court’s holding). Under Michigan law, as under the law of most states, a debt remains a debt even after the statute of limitations has run on enforcing it in court. . . . Nor does a “settlement offer” with respect to a time-barred debt by itself amount to a threat of litigation. Even an unsophisticated consumer could not reasonably draw such an inference, as the dissent and we both agree. . . . First, whether a letter is misleading raises a question of fact. Generally speaking, “a jury should determine whether the letter is deceptive and misleading.”. . . Second, Buchanan submits that evidence supports her claim, and in this instance her theory is sufficiently plausible that she deserves an opportunity to show how. She has already identified an expert in the area, Dr. Timothy E. Goldsmith, a professor of psychology, who plans to testify about consumers’ attitudes toward, and their understanding of, time-barred debt. . . . The relevant agencies charged with enforcing the Act are in the midst of studying this precise problem. See Br. for Federal Trade Commission and Consumer Financial Protection Bureau as Amici Curiae Supporting Appellant at 2–3. In November 2013, the Consumer Financial Protection Bureau asked for input on potential rulemaking regarding time-barred debt. Debt Collection (Regulation F), 78 Fed.Reg. 67,848, 67,875–76 (advance notice of proposed rulemaking given Nov. 12, 2013). According to the CFPB, “[c]onsumers, in some circumstances, may infer from a collection attempt the mistaken impression that a debt is enforceable in court even in the absence of an express or implied threat of litigation.” Id. at 67,875. . . . Third, . . . The other problem with the letter is that an unsophisticated debtor who cannot afford the settlement offer might nevertheless assume from the letter that some payment is better than no payment. Not true: Some payment is worse than no payment. The general rule in Michigan is that partial payment restarts the statute-of-limitations clock, giving the creditor a new opportunity to sue for the full debt.