Pierre defaulted on a credit card debt in early 2008. By September 2015, the statute of limitations had run on any collection action on that debt. Nevertheless, on September 2, 2015, Midland, acting as a debt collector, sent Pierre a dunning letter. The letter informed Pierre that $7,578.57 was past due but she had been “pre-approved” for a discount program with three options: (1) 40% off the balance if paid by October 2, 2015; (2) 20% off the balance if paid in 12 monthly installments; and (3) payment options as low as $50 per month. The letter included a disclosure stating:
|The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it, we will not report it to any credit reporting agency, and payment or non-payment of this debt will not affect your credit score.
To establish a claim under the FDCPA, the plaintiff must establish that (1) she is a consumer; (2) the debt arises from a transaction entered for personal, family, or household purposes; (3) the defendant is a debt collector; (4) the defendant has violated the FDCPA; and (5) that violation has harmed the consumer. Here, Judge Leinenweber concluded that the only question was whether Midland’s communication violated section 1692e(10).
It is a violation of section 1692e(10) if the correspondence in question is materially misleading from the perspective of an unsophisticated consumer, i.e. a consumer who is “uninformed, naïve and trusting, but possesses rudimentary knowledge about the financial world, is wise enough to read collection notices with added care, possesses reasonable intelligence, and is capable of making basic logical deductions and inferences.” Whether collection language is confusing is an objective test. It is the plaintiff’s burden to establish that the misleading language is material.
Pierre raised a variety of arguments in support of her contention that Midland’s letter was deceptive, but Judge Leinenweber latched on to one. Pierre contended that because the statute of limitations had run on the debt, she faced no legal ramifications for failing to pay that debt. That protection could be lost, however, because under Illinois law, the making of a partial payment or promise to repay a time-barred debt revives the statute of limitations. Pierre contended that because Midland did not affirmatively advise her about the possibility that the statute of limitations could be revived, its letter was misleading as a matter of law.
Midland, in turn, raised a variety of counterarguments. Its primary argument was that nothing in the FDCPA requires a debt collector to warn of the potential revival of the statute of limitations. Midland relied on Boedicker v. Midland Credit Management, Inc., 227 F. Supp. 3d 1235 (D. Kan. 2016), where the United States District Court for the District of Kansas had held just that and awarded Midland summary judgment.
Judge Leinenweber acknowledged Boedicker but found it unconvincing in light of Pantoja v. Portfolio Recovery Assocs., LLC, 78 F. Supp. 3d 743 (N.D. Ill. 2015) aff’d, 852 F.3d 679 (7th Cir. 2017). There, the Northern District had found a similar dunning letter deceptive because, by indicating that it would not sue to collect the debt, the debt collector at least suggested that it was seeking to collect a legally enforceable debt and could sue to collect the debt if it so chose. The Northern District also noted that “a consumer, sophisticated or otherwise, likely [would not] know that a partial payment would reset the limitations period, making that consumer vulnerable to a suit on the full amount.” The Seventh Circuit subsequently affirmed the Northern District’s ruling on both grounds, concluding the dunning letter was deceptive because it did not disclose to the recipient that partial payment or a promise to repay could revive the statute of limitations and because it did not make clear that the law prohibited a suit to collect the time-barred debt.
Midland also pointed to its interactions with various administrative agencies to support its position. Specifically, Midland pointed to “proposals under consideration” at the CFPB that suggested warning about revival may be more confusing to consumers, a consent order entered between Midland and the CFPB that mandated that Midland use the disclosure language contained in Pierre’s letter, and an FTC consent decree that did not require a revival warning. Judge Leinenweber rejected that argument, finding that the FTC and CFPB consent decrees were not entitled to any deference in the face of Seventh Circuit authority.
Midland raised several additional arguments that were summarily rejected. It contended that the deceptive language was not material because Midland’s internal policy prohibited reviving the statute of limitations. Judge Leinenweber rejected that argument because Midland’s policies could change or Midland could sell the debt to another collector with different policies. Midland also asserted that Illinois law regarding revival was uncertain, thus making an accurate disclaimer regarding revival difficult. Judge Leinenweber rejected this also, concluding that the lack of clarity in Illinois law did not exempt a debt collector from warning the consumer about the danger of revival.
Judge Leinenweber also briefly addressed materiality, rejecting Midland’s argument that the deception was immaterial because Pierre never made any payment. Materiality does not depend on whether the consumer acted in response to the communication, but whether the deceptive material has the ability to influence the consumer. Judge Leinenweber concluded with little analysis that Midland’s letter had the ability to influence Pierre and thus was materially misleading as a matter of law.
Interestingly, while Judge Leinenweber addressed materiality, he did not discuss the concrete injury requirement for Article III standing, which has taken prominence following the United States Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016). Although most courts have found that FDCPA violations provide the necessary concrete injury to satisfy Article III, Pierre never paid or promised to pay anything in response to Midland’s letter. As such, it difficult to argue that she suffered a concrete injury under the circumstances.
The Ramifications of the Pierre Decision.
There are three significant lessons that debt collectors should draw from Judge Leinenweber’s decision in Pierre.
First, if the law prohibits the debt collector from taking an action, the debt collector must make that clear in its communication. It is not acceptable to say that you “will not” do something that you “cannot” do. This should be simple enough for debt collectors to follow going forward.
Second, debt collectors have an obligation to warn consumer debtors about the potential legal ramifications of their actions. This is more difficult to define in practice and raises more questions than answers. How far does this obligation extend? How should debt collectors deal with conflicting or unclear issues of law (such as Illinois law regarding revival of the statute of limitations)? Judge Leinenweber’s holding, while based on the Pantoja decision, represents a significant threat to debt collectors.
Third, debt collectors cannot rely on their agreements with the CFPB or the FTC. Here, Midland entered into a consent decree with the CFPB that required use of the disclosure language contained in the subject dunning letter. Yet in the Seventh Circuit, complying with that consent decree means violating the FDCPA, and vice versa. It is not clear what a debt collector like Midland is expected to do in that situation. Again, this holding creates significant confusion and represents a significant threat to debt collectors.
It is likely that Pierre will be appealed to the Seventh Circuit, and perhaps the Seventh Circuit will provide additional clarity. But for the time being, debt collectors must be aware of Pierre and consider whether their debt collection communications need to be modified, at least in the Seventh Circuit states of Illinois, Indiana, and Wisconsin.
For more information on the matters discussed in this Locke Lord QuickStudy, please contact the authors.
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