Source: http://ellislawgrp.com/article16debtcollection.html
Timestamp: 2020-02-17 04:59:46
Document Index: 765235462

Matched Legal Cases: ['§ 1692', '§1692', '§ 1692', '§ 1692', '§ 413', '§ 1692', '§ 1692', '§ 1692', '§ 1692', '§ 1692', '§ 1692', '§ 1692', '§ 1692', '§ 1788', '§ 1788', '§ 1692']

The Statute of Limitations, Consumer Debt and the Interplay of State Law
For an update of this article, click: "Debt Collection: Issues with Time-Barred Debt 2."
The Statute of Limitations, Consumer Debt
and the Interplay of State Law
On the other hand, if state law is violated because, for example, the amount sought by a debt collector is neither authorized by agreement “nor permitted by law,” then the FDCPA is likewise violated. See, e.g. FDCPA, 15 U.S.C. § 1692f(1), §1692e(2), § 1692e(5), § 1692e(10); Newman v. CheckRite, 912 F.Supp. 1354, 1376 (E.D. Cal. 1995); West v. Costen, 558 F.Supp. 564, 573 (W.D. Va. 1983).
In most states, expiration of the statute does not eliminate a creditor/debt collector’s right to pursue payment of unpaid debt. Therefore, in most states, a debt collector is free to request or demand payment on an unpaid account even if the statute of limitations has expired.
An initial question to be determined is whether a collection agency violates state law by filing suit or otherwise collecting time-barred obligation.
As noted, most states, such as California, adhere to the rule that the expiration of the statutory period within which an action can be commenced does not extinguish the obligation sued upon. Mitchell v. County Sanitation Dist., 150 Cal.App.2d 366, 370-372 (1957).
This is because the statute of limitations arises under the California law of procedure, and, thus, a statute of limitations “affects only the remedy sought, but ‘not the substantive right or obligation’” sued upon. Adams v. Paul, 11 Cal.4th 583, 597 (1995); accord Davis v. Mills, 194 U.S. 451 (1904); Freyermuth v. Credit Bureau Svcs., Inc., supra, 248 F.3d at 771; Huertas v. Galaxy Asset Mgmt., supra, 642 F.3d at 33-34; Gervais v. Riddle & Assoc., P.C., 479 F.Supp.2d 270, 273 (D.Conn. 2007); Shorty v. Capital One Bank, supra, 90 F.Supp.2d at 1332.
A statute of limitations affects the remedy only; “it gives the debtor a personal privilege that he may or may not choose to exercise.” 3 Witkin, California Procedure § 413, p. 521 (4th ed. 1996). And, since the statute of limitations is a personal privilege, it may be waived at the option of the one entitled to assert it; if the statute is not affirmatively pled or asserted by a defendant, its benefits are waived. Adams, supra, 11 Cal.4th at 597.
Put another way, under the common law, if a defendant does not affirmatively invoke or assert the procedural defense of the statute of limitations, the defense is waived or forfeited. Minton v. Cavaney, 56 Cal.2d 576, 581 (1961). Under such circumstances, a plaintiff normally has every right to pursue the claim on the merits, regardless of whether the action is otherwise untimely. Adams, supra, 11 Cal.4th at 597. “Thus, unless the defendant properly invokes the statute of limitations as a defense, the expiration of the statute of limitations does not affect even the remedy.” Ibid.
Starting in 1987, with the case of Kimber v. Federal Financial Corp., 668 F.Supp. 1480 (M.D. Ala. 1987), the district court early on first addressed whether the threat to, and actual filing of, a collection suit on time-barred debt violated the FDCPA.
Since Kimber, numerous federal courts have weighed in on this issue.
Freyermuth states: “In 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.” Accord Shorty v. Capital One Bank, 90 F.Supp.2d 1330, 1332 (D. N.M. 2000); Walker v. Cash Flow Consultant, Inc., 200 F.R.D. 613, 616 (N.D. Ill. 2001.)
But even where the “threat” of litigation is not express or direct, an implied threat may violate the FDCPA. See, e.g., Huertas, supra, 641 F.3d at 33-34; Perretta v. Capital Acquisitions and Mgmt. Co., 2003 WL 21383757 (N.D. Cal. 2003) (FDCPA claim stated where collection letter stated that failure to work with collector could lead to “further steps being taken”); Stepney v. Outsourcing Solutions, Inc., 1997 WL 722972 at *4-5 (N.D. Ill. 1997) (FDCPA claim stated where collection letter stated if debt paid “no further collection action” would be taken).
Thus, while the mere attempt to collect a voluntary payment on an out-of-statute debt may not violate the FDCPA, threatening the consumer implicitly or expressly, directly or indirectly, with a lawsuit concerning a debt the collector either knew or should have known was beyond the statute of limitations has been found to violate the FDCPA. These courts have found that the act of threatening or filing lawsuits on debts that are beyond the statute of limitations violate, inter alia, 15 U.S.C. § 1692f(1). Courts have also found that threatening to take legal action when the debt has gone beyond the statutory time limit constitutes a false representation of the status of a debt, in violation of § 1692e(2)(A), § 1692e(5) and/or 1692e(10).
1 15 U.S.C. § 1692f(1) prohibits: “[t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.”
2 15 U.S.C. § 1692e(2)(A) prohibits: “[t]he false representation of the character, amount or legal status of the debt.”
3 15 U.S.C. § 1692e(5) prohibits: “[t]he threat to take any action that cannot legally be taken or that is not intended to be taken.”
4 15 U.S.C. § 1692e(10) prohibits: “[t]he use of any false representation or deceptive means to collect or attempt to collect any debt. . .”
Some federal courts have suggested that in order to not violate the FDCPA, the debt collector may be required to affirmatively disclose to, or warn, the consumer in its collection letters that the debt is beyond the statute of limitations.
In Buchanan v. Northland Group, Inc., supra, 776 F.3d at 395, the debt collector made a “settlement offer” in its collection demand letter. The debt was time barred. The Court found that making a “settlement” offer implied that the debt could have been successfully sued upon or enforced, and, hence, the offer impermissibly and misleadingly threatened the debtor under the FDCPA. Id.
[I]f a debt collector does not know whether the debt submitted for collection is time barred, it would be easy to include general language about the possibility [in collection letters]. Id.; accord Filgueiras, supra, 2016 WL 1626958 at *11
The decision thus suggests that the settlement offer may not have violated the FDCPA if the collector had included a disclosure regarding the debt’s out-of-statute status.
The Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) have each taken the position that it is the obligation of the collector, creditor or the debt buyer to affirmatively disclose to the consumer that the debt being collected is beyond the statute of limitations so as to ensure the least sophisticated consumer is not misled.
In amicus curiae briefs filed in support of the plaintiff consumers in both the Buchanan and McMahon appeals, the FTC and CFPB argued that use of the term “settlement” offer in those collection letters on out-of-statute debt, without disclosure of this status, violated the FDCPA.
It is clear the positions of FTC and CFPB are that even in the absence of express threat of litigation, a FDCPA § 1692e claim is stated where the collector uses the term “settle,” or a similar term, in connection with collection on a time-barred debt. See also FTC, Repairing a Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration (July 2010), http://1.usa.gov/buF50z (“Broken System”); FTC, The Structure and Practices of the Debt Buying Industry (Jan. 2013), http://1.usa.gov.Z0EjxZ(“Structure & Practices”); FTC, Collecting Consumer Debts: The Challenges of Change (Feb. 2009),http://1.usa.gov/3ZLwb(“Challenges”).
Even if the statute of limitations has expired, a court may still award a judgment against if you don’t show up and raise the statute of limitations as a defense.
Despite that, as noted above, virtually all states follow the rule that expiration of the statute does not extinguish the creditor’s substantive rights (Mississippi and Wisconsin are exceptions), seemingly all states permit at least a request for voluntary payment.
Collectors must examine their state law before engaging in collection activities after the statute of limitations has expired. Some states do not permit a suit on consumer debt after the statute of limitations has expired, or they explicitly require affirmative disclosures when attempting to collect consumer out-of-statute debts.
On January 1, 2014, California’s Fair Debt Buying Practices Act went into effect. See Cal. Civ. Code §§ 1788.50, et seq. The statute prohibits the filing of a lawsuit, or the initiation of arbitration by a debt buyer on purchased debt where the statute of limitations has expired. Cal. Civ. Code § 1788.56.
The states of Connecticut, Massachusetts, Mississippi, North Carolina, West Virginia, Wisconsin and New York City also all have statutory law or regulations applicable to collectors or debt purchasers restricting the collection of out-of-state debt and requiring disclosures.
Filing a proof of claim in either a Chapter 7 or a Chapter 13 bankruptcy on time-barred debt may, or may not, be deemed a violation of the Bankruptcy Code.
In an extremely thoughtful and well-articulated analysis which surveyed the field of decisions, the court in In re: Gatewood, 533 B.R. 905 (8th Cir. BAP 2015) found the filing of a proof of claim on a time-barred debt did not violate the FDCPA because (1) the filing of a proof of claim was necessarily triggered by the debtor’s affirmative action of filing for protection, (2) the debt itself still existed, and (3) the debtor’s rights were fully protected by the bankruptcy court and the bankruptcy claims process.
An agency should implement the policies and procedures for screening debt that is placed for collection to determine whether (1) the debt is clearly “fresh” or within the statute, (2) the debt is clearly “out” of statute, and (3) the debt is not clearly time barred (uncertain status).
Collectors may rely, for purposes of asserting a bona fide error defense and in other ways, on the reasonable representations of their clients as to the status of the debt. See Clark v. Capital Credit & Collection Servs., 460 F.3d 1162 (9th Cir. 2006); Ducrest v. Alco Collections, 931 F. Supp. 459, 462 (M.D. La. 1996).
For debt purchasers, where the debt is not assigned, but bought, and the debt is very old, the risk/reward in collecting on such debt is skewed toward riskiness. Collectors who collect on purchased debt should never sue on out-of-statute debt. They should also revise and edit their collection letters carefully to avoid even a hint that their collection activity will proceed to suit. Threatening remedies or amounts only available upon a successful suit and judgment should be avoided. See 15 U.S.C. § 1692e(5)
Defenses to FDCPA Claims Arising
From Collection Efforts on Time-Barred Debt
Where the collector has policies and procedures in place to determine the statute of limitations and goes forward in the good faith belief the statute of limitations has not expired, the defense may be available. See, e.g., Simmons v. Miller, 970 F.Supp. 661, 664-667 (S.D. Ind. 1997). In this regard, reliance upon information from the creditor client may bolster this defense. Clark v. Capitol Credit, supra, 460 F.3d at 1162.
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