Josh Dickinson (Omaha) and Kersten Holzhueter (Kansas City) recently obtained a victory for a debt buyer in the Ninth Circuit Court of Appeals. In Barry Stimpson v. Midland Funding, LLC, the plaintiff alleged that a letter seeking to collect on a time-barred debt violated the Fair Debt Collection Practices Act. The letter offered a discount to resolve the debt and contained this language to explain that the debt could not be enforced in court: “The law limits how long you can be sued on a debt and how long a debt can appear on your credit report. Due to the age of this debt, we will not sue you for it or report payment or non-payment of it to a credit bureau.”
Plaintiff claimed the letter was misleading and deceptive because (1) it did not explain that a partial payment may restart the statute of limitations in certain states and (2) it said plaintiff would benefit from “savings” if he accepted one of the discounts offered in the letter even though he could not be sued if he chose to pay nothing. Plaintiff sought to assert his FDCPA claim on behalf of a class.
The district court granted summary judgment in favor of the debt buyer. 347 F.Supp.3d 538 (D. Id. Sept. 27, 2018). The lower court held that the letter did not need to include a disclosure regarding the potential to revive the statute of limitations because plaintiff’s account was governed by Nevada law, which prohibited revival. Moreover, the court ruled that the letter could tout the benefit of “savings” because plaintiff still owed the debt even if he could not be sued.
Last month, the Ninth Circuit agreed that the debt buyer did not violate the FDCPA. 944 F.3d 1190. The court of appeals concluded that “the least sophisticated debtor would understand the letter’s disclosure to mean that Midland cannot take a legal action to collect the debt.” This holding is significant as debt collectors across the country have utilized the same statute of limitations disclosure based on informal guidance from the CFPB. For the first time, those collectors heard from a federal court of appeals that this disclosure language is sufficient.
Moreover, the Ninth Circuit explained what collectors could omit from letters: a disclosure about the potential to revive the statute of limitations. The court of appeals did not narrow this holding to only debts that are governed by state law that has a prohibition on revival; its holding broadly applied to all time-barred debts. “Although Congress expressly required debt collectors to provide specific statements to debtors on certain issues, nothing in the FDCPA requires debt collectors to make disclosures that partial payments on debts may revive the statute of limitations in certain states.”
Finally, the Ninth Circuit concluded the letter did not violate the FDCPA by offering discounts and outlining benefits that could result from accepting one of the offers. According to the court, a debt collector is not required to tell a consumer that he has the option to pay nothing when a debt is barred by the statute of limitations. “Debt collectors may attempt to persuade debtors to make payments, so long as the debt collector otherwise complies with statutory requirements.”
This decision is great news for collectors. Collectors in the Ninth Circuit now have clearer guidance on how to comply with the FDCPA when seeking to collect on a time-barred debt (and collectors outside the Ninth Circuit can cite this opinion to justify the language in their letters).