5th Cir. Says Settlement Offer on Time-Barred Debt Violates FDCPA Because Debtor Would Not Know that Partial Payment Triggers New SofL

In Daugherty v. Convergent Outsourcing, Incorporated, 2016 WL 4709712 (C.A.5 (Tex.), 2016), the Court of Appeals for the Fifth Circuit allowed an FDCPA claim to proceed based on a collection letter for a time-barred debt, even where no litigation is falsely threatened.

There is an apparent conflict in the circuits as to whether a collection letter offering “settlement” of a time-barred debt can violate the FDCPA if the debt collector does not disclose the debt’s unenforceability or expressly threaten litigation. The Third and Eighth Circuits have stated that “[i]n the absence of a threat of litigation or actual litigation, no violation of the FDCPA has occurred when a debt collector attempts to collect on a potentially time-barred debt that is otherwise valid.” Huertas, 641 F.3d at 33 (quoting Freyermuth, 248 F.3d at 771). On the other hand, the Sixth and Seventh Circuits have held that collection letters offering to settle time-barred debts without disclosing the status of the debt can be misleading and therefore violate the FDCPA even if they do not expressly threaten litigation. See Buchanan v. Northland Grp., Inc., 776 F.3d 393, 397 (6th Cir. 2015); McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1020 (7th Cir. 2014). We have not previously taken a position on this issue, but we are persuaded by McMahon and Buchanan that a collection letter that is silent as to litigation, but which offers to “settle” a time-barred debt without acknowledging that such debt is judicially unenforceable, can be sufficiently deceptive or misleading to violate the FDCPA. . . . . . We agree with the Seventh Circuit’s interpretation of the FDCPA in McMahon, and with the Sixth Circuit’s opinion in Buchanan insofar as it is consistent with McMahon. Accordingly, we agree that a collection letter seeking payment on a time-barred debt (without disclosing its unenforceability) but offering a “settlement” and inviting partial payment (without disclosing the possible pitfalls) could constitute a violation of the FDCPA. Accepting as true the well-pleaded facts alleged by Daugherty, and viewing these facts in the light most favorable to her, we conclude that Daugherty’s claim is facially plausible.