The Third Circuit Court of Appeals has reversed a lower court’s decision and revived a lawsuit against a collection agency for allegedly violating the Fair Debt Collection Practices Act by including the word “settlement” in a letter seeking to work out an arrangement on a time-barred debt.
A copy of the ruling in the case of Tatis v. Allied Interstate can be accessed here.
The plaintiff incurred a debt to a fitness gym in the amount of about $1,300. The defendant sent a letter to the plaintiff — after the six-year statute of limitations in New Jersey had expired — seeking a settlement on the unpaid debt. The collection letter included the language:
“[The creditor] is willing to accept payment in the amount of $128.99 in settlement of this debt. You can take advantage of this settlement offer if we receive payment of this amount or if you make another mutually acceptable payment arrangement within 40 days . . . .”
The plaintiff sued, alleging that the word “settlement” meant she had a “legal obligation” to pay the debt. A District Court granted a motion to dismiss the case by the defendant, which was appealed to the Third Circuit. A three-judge panel released its unanimous ruling yesterday.
The Third Circuit had previously ruled on a similar case in Huertas v. Galaxy Asset Management, deciding that an attempt to collect on a time-barred debt did not violate the FDCPA “unless it is accompanied by the threat of legal action.”
Since the ruling in Huertas, the Third Circuit noted in its ruling, three other appeals courts have ruled that it is “plausible” for offers to settle time-barred debts to misled the least sophisticated consumer.
The FDCPA does not “require” a threat of legal action in order for a violation to exist, the court noted, just that three “discrete” categories of conduct are prohibited: false, misleading, or deceptive misrepresentations.
By using the word settlement, a least sophisticated consumer “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,” the Third Circuit noted in its opinion.
The order did not set forth any language that would be considered not to be misleading, and said that using the word “settlement” is not “misleading as a matter of federal law.”