Collection letters about time-barred debt can violate Fair Debt Collection Practices Act even though litigation is not threatened, Seventh Circuit rules

by Jay Pate

On February 7, 2012, Capital Management Services sent a debt-collection letter to Juanita Delgado, a resident of Illinois. The letter stated, in part:

Dear Juanita Delgado,

This company has been engaged by RESURGENT CAPITAL SERVICES, LP, the servicer of the account, to resolve your delinquent debt of $2404.13. Please submit your payment and make your check or money order payable to Capital Management Services, LP, to the above address.

Unless you notify this office within 30 days after receiving this notice that you dispute the validity of this debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within 30 days from receiving this notice that you dispute the validity of this debt or any portion thereof, this office will obtain verification of the debt or obtain a copy of a judgment and mail you a copy of such verification or judgment. If you request this office in writing within 30 days after receiving this notice this office will provide you with the name and address of the original creditor, if different than the current creditor.

Capital Management Services, LP is authorized to accept less than the full balance due as settlement of the above account. The settlement amount of $721.24, which represents 30% of the amount presently owed, is due in our office no later than forty-five (45) days after receiving this notice. We are not obligated to renew this offer.

For your convenience, this settlement may be made online at: For other payment options, please contact Capital Management Services….

This is an attempt to collect a debt; any information obtained will be used for that purpose. This communication is from a debt collector.

The “debt” discussed in this collection letter was actually eight years old. As a result, Capital Management Services was time-barred from enforcing the debt under Illinois’s statute of limitations. As you can see, the collection letter did not mention that any collection action would have been barred by the statute of limitations. The letter did not even mention when the debt had been incurred. Instead, the letter instructed the recipient to “detach and return [the] top portion with payment.”

Delgado filed a proposed class action lawsuit under the Fair Debt Collection Practices Act. Delgado alleged that sending a dunning or collection letter for a time-barred debt violates the Act. The suit alleged that the debt collector violated that statute by sending a dunning letter on a time-barred debt and including an offer of “settlement” which, if accepted, would in fact make the debtor worse off.

The Fair Debt Collection Practices Act prohibits the use of “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e. Section 1692e furnishes a nonexclusive list of prohibited practices, including the following: false representation of the character, amount, or legal status of any debt, § 1692e(2)(A); threat to take any action that cannot legally be taken, § 1692e(5); and use of any false representation or deceptive means to collect or attempt to collect any debt, § 1692e(10). Section 1692f prohibits debt collectors from using “unfair or unconscionable means to collect or attempt to collect any debt.” “[I]n deciding whether … a representation made in a dunning letter is misleading the court asks whether a person of modest education and limited commercial savvy would be likely to be deceived.” Evory v. RJM Acquisitions Funding L.L.C., 505 F.3d 769, 774 (7th Cir.2007). A court views the letter through the perspective of an “unsophisticated consumer.” Lox v. CDA, Ltd., 689 F.3d 818, 822 (7th Cir.2012).).

The debt collector filed a motion to dismiss for failure to state a claim. The Third and Eighth Circuits have held that attempts to collect a time-barred debt violate the Act only if the collector also threatens litigation. See Huertas v. Galaxy Asset Mgmt., 641 F.3d 28, 33 (3d Cir.2011); Freyermuth v. Credit Bureau Servs., Inc., 248 F.3d 767, 771 (8th Cir.2001). In Delgado’s case, the district court disagreed with those courts and instead gave deference to the views of the Federal Trade Commission, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Office of the Comptroller of the Currency. As those agencies had argued in other cases, the district court held that when “collecting on a time barred debt a debt collector must inform the consumer that (1) the collector cannot sue to collect the debt and (2) providing a partial payment would revive the collector’s ability to sue to collect the balance.” The motion to dismiss was denied.

The debt collector requested permission to appeal. Given “the importance of the issues,” the Seventh Circuit accepted the appeal. The Seventh Circuit has now affirmed the district court’s decision to deny the motion to dismiss. McMahon v. LVNV Funding, LLC, — F.3d —-, 2014 WL 929358 (7th Cir. March 11, 2014). Disagreeing with the Third and Eighth Circuits, the court explained “we have concluded that the statute cannot bear the reading that those courts have given it.” Id.

The plain language of the FDCPA prohibits not only threatening to take actions that the collector cannot take, but also the use of any false, deceptive, or misleading representation, including those about the character or legal status of any debt. If a debt collector stated that it could sue on a timebarred debt but was promising to forbear, that statement would be a false representation about the legal status of that debt.


The court of appeals noted that whether a dunning letter is confusing is a question of fact. Dismissal is appropriate only when it is “apparent from a reading of the letter that not even a significant fraction of the population would be misled by it.”Id.

“[A] letter may confuse even though it is not internally contradictory. Unsophisticated readers may require more explanation than do federal judges; what seems pellucid to a judge, a legally sophisticated reader, may be opaque to someone whose formal education ended after sixth grade.” Recognizing the distinction between what may confuse a federal judge and an unsophisticated consumer is important because the intended recipients of dunning letters span the entire range of abilities.

Id. (citations omitted).

Given this standard , the Seventh Circuit found that the district court in Delgado was correct in denying the motion to dismiss. Specifically, the court held that:

… if the debt collector uses language in its dunning letter that would mislead an unsophisticated consumer into believing that the debt is legally enforceable, regardless of whether the letter actually threatens litigation (the requirement the Third and Eighth Circuits added to the mix), the collector has violated the FDCPA. Because it is plausible that an unsophisticated consumer would believe a letter that offers to “settle” a debt implies that the debt is legally enforceable, it was correct in Delgado to decline to dismiss the action at this stage[.]


Whether a debt is legally enforceable is a central fact about the character and legal status of that debt. A misrepresentation about that fact thus violates the FDCPA. Matters may be even worse if the debt collector adds a threat of litigation, but such a threat is not a necessary element of a claim. Id.

In Delgado’s case, the collection letter did not give a hint that the debt was vulnerable to an ironclad limitations defense. The court of appeals concluded that an unsophisticated consumer who read the dunning letter Delgado received could have been led to believe that her debt was legally enforceable. “In other words, the letters misrepresented the legal status of the debts, in violation of the FDCPA.” Id. Furthermore, the fact that Delgado’s letter contained an offer of settlement “makes things worse, not better, since a gullible consumer who made a partial payment would inadvertently have reset the limitations period and made herself vulnerable to a suit on the full amount.” Id. The settlement offer “only reinforced the misleading impression that the debt was legally enforceable.” Id.

The district court was affirmed. The case was remanded to the district court to consider Delgado’s motion to certify a class action.

Victim of unfair debt collection practices?

The Fair Debt Collection Practices Act prohibits debt collectors from using abusive, unfair, or deceptive practices to collect from you. Debt collectors include collection agencies, lawyers who collect debts on a regular basis, and companies that buy delinquent debts and then try to collect them.

The Fair Debt Collection Practices Act applies to personal, family, and household debts. Examples of debts covered by the Act include money you owe on a personal credit card account, an auto loan, a medical bill, and your mortgage.

Consumers have the right to sue a debt collector in state or federal court within one year from the date the law was violated. The court can require the collector to pay the consumer for any damages suffered because of the illegal collection practices like lost wages and medical bills. The court can also require the debt collector to pay up to $1,000 for a violation, even if the consumer cannot prove that he or she suffered actual damages. Consumers can also be reimbursed for their attorney’s fees and court costs

A group of people also may sue a debt collector as part of a class action lawsuit and recover money for damages up to $500,000 or one percent of the collector’s net worth, whichever amount is lower. To be successful in a political and legal climate that has become increasingly hostile toward class action lawsuits, class action clients need educated, experienced attorneys like those at Heygood, Orr & Pearson.

We have the experience and knowledge to guide our clients through class action litigation from beginning to end. And we have the financial resources to help them stand toe-to-toe with some of the biggest corporations in the world through what is often a lengthy, complicated and expensive process. Heygood, Orr & Pearson has represented individuals in class actions involving securities fraud, consumer protection law violations and unfair wage claims

If you think a debt collector has violated the law, please contact us today for a free consultation to learn more about your legal rights and options. You can reach us by calling toll-free at 1-877-446-9001 or by filling out our free online contact form.

by Jay Pate

John “Jay” Pate is a licensed attorney who focuses his practice on complex tort litigation involving catastrophic personal injury, wrongful death, medical malpractice, and product liability cases.