3rd Cir. Says Letter Offering to “Settle” Time-Barred Debt Could Be Deceptive under the FDCPA

In Tatis v. Allied Interstate, LLC., 2018 WL 818004, at *3 (C.A.3 (N.J.), 2018), the Court of Appeals for the Third Circuit held that a letter that offered to “settle” a time-barred debt could be deceptive.

Thus, Huertas stands for the proposition that debt collectors do not violate 15 U.S.C. § 1692e(2)(A) when they seek voluntary repayment of stale debts, so long as they do not threaten or take legal action. But the FDCPA sweeps far more broadly than the specific provision found in § 1692e(2)(A). It prohibits “any false, deceptive, or misleading representation” associated with debt-collection practices. 15 U.S.C. § 1692e (emphasis added). Accordingly, this appeal requires us to decide whether collection letters may run afoul of the FDCPA by misleading or deceiving debtors into believing they have a legal obligation to repay time-barred debts even when the letters do not threaten legal action. . . Since Huertas, three other United States Courts of Appeals have addressed the question presented in this appeal. All three have determined that, even absent threats of litigation, it is plausible that offers to “settle” time-barred debts could mislead the least-sophisticated debtor. . . We also agree with our sister courts that, in the specific context of a debt-collection letter, the least-sophisticated debtor could be misled into thinking that “settlement of the debt” referred to the creditor’s ability to enforce the debt in court rather than a mere invitation to settle the account. App. 37. See Buchanan, 776 F.3d at 395; McMahon, 744 F.3d at 1021. As the Buchanan court’s survey of sources suggests, multiple dictionaries define “settle” to refer not only to “settling accounts,” but also to the avoidance or resolution of litigation.⁴ See 776 F.3d at 399. Moreover, the chance that the letter could mislead the least-sophisticated debtor increases with the use of phrases such as “settlement offer,” which Black’s Law Dictionary defines as “[a]n offer by one party to settle a dispute amicably (usu[ally] by paying money) to avoid or end a lawsuit or other legal action.” (10th ed. 2014).  These textual sources and the reasoning of the Fifth, Sixth, and Seventh Circuits indicate that Tatis has “state[d] a facially plausible claim for relief.” Caprio v. Healthcare Revenue Recovery Grp., LLC, 709 F.3d 142, 147 (3d Cir. 2013). Because the words “settlement” and “settlement offer” could connote litigation, the least-sophisticated debtor could be misled into thinking Allied could legally enforce the debt. Cf., e.g., Huertas, 641 F.3d at 33 (analyzing a letter using the more general verb “to resolve”). We recognize that some debtors might properly interpret Allied’s letter as referring solely to the settlement of an account. See Buchanan, 776 F.3d at 400–01 (Kethledge, J., dissenting) (noting that many debtors receive multiple collection letters without a suit ever being brought). But others may not. See Wilson, 225 F.3d at 354 (noting that the “least sophisticated debtor” standard is lower than the “reasonable debtor” standard). Both the context in which the letter is received and the available textual sources indicate that, far from being a “bizarre or idiosyncratic interpretation[ ]” not covered by the least-sophisticated debtor standard, interpreting the settlement offer as creating a legally-enforceable obligation is a mistake even a debtor “willing [ ] to read with care” might make. Campuzano-Burgos, 550 F.3d at 299 (quoting Rosenau, 539 F.3d at 221).  In sum, because we conclude that the least-sophisticated debtor could plausibly be misled by the specific language used in Allied’s letter, we will vacate the District Court’s order granting Allied’s motion to dismiss and remand for further proceedings. In doing so, we reiterate what we said both in Huertas and elsewhere: standing alone, settlement offers and attempts to obtain voluntary repayments of stale debts do not necessarily constitute deceptive or misleading practices. See Huertas, 641 F.3d at 32–33; see also Campuzano-Burgos, 550 F.3d at 299 (noting that “[t]here is nothing improper about making a settlement offer”). Nor do we impose any specific mandates on the language debt collectors must use, such as requiring them to explicitly disclose that the statute of limitations has run. We do not, therefore, hold that the use of the word “settlement” is “misleading as a matter of federal law.” Buchanan, 776 F.3d at 400 (Kethledge, J., dissenting). Rather, in keeping with the text and purpose of the FDCPA, we merely reiterate that any such letters, when read in their entirety, must not deceive or mislead the least-sophisticated debtor into believing that she has a legal obligation to pay the time-barred debt. See, e.g., Caprio, 709 F.3d at 149 (noting that “even the ‘least sophisticated debtor’ is expected to read any notice in its entirety”); Huertas, 641 F.3d at 33 (examining the specific language used in the letter from the perspective of the least-sophisticated debtor); Campuzano-Burgos, 550 F.3d at 300 (analyzing letters “as a whole”).

Sounds like the 3rd Circuit is saying “no” to class claims under this theory. . .