In Buchanan v. Northland Group, Inc., No. 13-2523 (6th Cir. Jan. 13, 2015), the Sixth Circuit reversed dismissal of a putative class action, holding that a creditor’s “settlement offer” to resolve an unpaid debt—without disclosing that the statute of limitations had expired—plausibly stated a claim for a “misleading” attempt to collect on a debt, in alleged violation of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”).
The plaintiff, Esther Buchanan, received a letter from the defendant, Northland Group, in which Northland Group offered to “settle” a debt with Buchanan, but did not disclose that the statute of limitations had expired or that partial repayment could re-trigger the statute of limitations. Buchanan filed a putative class action against Northland Group, alleging that the letters violated the FDCPA, which prohibits the a “false, deceptive, or misleading representation” in connection with the collection of any debt, which includes the misleading representation of the “legal status of any debt.”
At the district court, Northland Group moved to dismiss under Fed. R. Civ. P. 12(b)(6), arguing that, as a matter of law, a debt remains a debt even after the statute of limitations has expired, and that Northland Group is still legally permitted to let a debtor know what the debt is and to ask for payment. Northland Group also argued that using the phrase “settlement offer” with respect to a time-barred debt did not constitute a “threat of litigation” under the FDCPA. The District Court agreed with Northland Group, dismissing the claim.
The Sixth Circuit reversed the District Court’s decision. While the Sixth Circuit noted that it agreed with the District Court’s (and Northland’s) premises that Northland was permitted to demand payment, the Sixth Circuit noted that “truth is not always a defense” under the FDCPA, as even truthful statements may create a misleading impression regarding the character or legal status of a debt. Thus, even though the statements in the letter may be truthful, they could create the misleading impression that Northland had a legally enforceable right to collect the debt for which it was seeking “settlement.”
The Sixth Circuit noted that the Consumer Financial Protection Bureau is also currently seeking input on potential rulemaking regarding time-barred debt, concluding that if Northland’s argument were affirmed—that consumer confusion, as a matter of law, was not even a possibility—it would amount to a “declaration that the CFPB’s efforts on this score are a waste of time.”
Finally, the Sixth Circuit reviewed numerous dictionary definitions of the word “settle” and “settlement,” noting that while the terms have slightly different meanings in different contexts, nearly all of them involved some type of resolution of actual or potential litigation. As such, the Sixth Circuit concluded that Northland’s offer to “settle” a time-barred debt could plausibly, at least the preliminary stage of pleadings, mislead a consumer by creating the impression that the underlying debt is still enforceable in court. The Court also concluded by noting that, in many states, a partial repayment on time-barred debt restarts the statute of limitations. As such, Northland’s failure to disclose that fact could, potentially, create confusion regarding the effect of a partial payment on the legal status of the debt.
Accordingly, the Sixth Circuit reversed the District Court’s Order dismissing the suit against Northland. A full copy of the Sixth Circuit’s decision is available here.
