3rd Circuit rules settlement offer for time-barred debt could violate FDCPA

Courts Third Circuit Appellate FDCPA Debt Collection

On February 12, the U.S. Court of Appeals for the 3rd Circuit held that a collection letter offering a settlement on a time-barred debt could violate the prohibition against "any false, deceptive, or misleading representation or means in connection with the collection of any debt” of the Fair Debt Collection Practices Act (FDCPA). According to the opinion, the plaintiff filed a class action complaint against the debt collector after receiving a letter stating that the debt collector would accept a partial “settlement” of the delinquency amount, which was past the New Jersey six-year statute of limitations. The lower court granted the debt collector’s motion to dismiss, finding that the letter did not contain a threat of legal action by the use of the word settlement and therefore, did not violate the FDCPA. In reversing the lower court’s decision, the 3rd Circuit concluded that 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 its conclusion, the appellate court also noted that settlement offers of time-barred debts “do not necessarily constitute deceptive or misleading practices” under the FDCPA and remanded the case back to the lower court for review.