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Offering to "Settle" Time-Barred Debts

The U.S. Court of Appeals for the Seventh Circuit issued a decision on two lawsuits involving debt collectors offering “settlements” on debts that were beyond the statute of limitations. We represented the plaintiff in both cases. McMahon v. LVNV Funding and Delgado v. Capital Management Services, Nos. 12-3504 and 13-2030 (7th Cir., March 11, 2014). The Federal Trade Commission and Consumer Financial Protection Bureau filed a brief supporting the consumers.

“The underlying question presented by these two appeals…relates to the circumstances under which a dunning letter for a time-barred debt could mislead an unsophisticated consumer to believe that the debt is enforceable in court, and thereby violate the Fair Debt Collection Practices Act.”

The court found the reference in a collection letter of a possible “settlement” of the debt to be deceptive, because it implied that allegedly enforceable obligation to pay the debt existed.

“In summary, we conclude that an unsophisticated consumer could be misled by a dunning letter for a time-barred debt, especially a letter that uses the term ‘settle’ or ‘settlement.’”