Michigan

: Michigan Collection Law Blog

How to collect a time barred debt without violating Fair Debt Collection Practices Act

Here is an interesting conundrum. Defendant Portfolio Recovery Associates ("PRA") purchased a time barred debt from Brewer and sent Brewer a "notice" that the debt has been transferred. PRA sent Brewer a letter that states:

"Portfolio Recovery Associates purchased the account referenced above [Capital One Bank, balance $ 2,444.20] on 03/22/07. Interest continues to accrue on this account until the account is satisfied. The stated balance includes interest as of the date of this letter. All future payments and correspondence for this account, including credit counseling service payments, should be directed to us. This account may be collected by us or by our affiliate, Anchor Receivables Management."

It also added the validation language of the FDCPA as follows:

Unless you notify this office [*4] 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 judgment or verification. 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 from the current creditor.

Brewer sued PRA alleging that PRA violated the FDCPA. Brewer alleged that because the debt was barred by the statute of limitations, that PRA created a false representation by sending him a letter implying that this debt was still valid. The court dismissed Brewer's claim. If you look at the language the letter, you will see that PRA did not demand payment of the debt, but merely advised the debtor that this debt had been transferred. The court held the running of the statute of limitations does not extinguish the debt, but merely makes it unenforceable.

The court held that even the least sophisticated consumer could not infer from PRA's letter that there was a threat to sue. Hence, there was no violation of the FDCPA.

Even as a debt collector, I think that there are two major issues with the court's ruling: First, The "least sophisticated consumer" standard is an extremely low one. Without trying to be politically incorrect or offensive, suffice it to say that one might find a least sophisticated consumer living in a group home. If an individual such as this received a letter stating that the debt (presumably valid and enforceable) had been transferred and interest continues to accrue, what is that consumer supposed to garner from the letter? Hell, even if you cranked up this consumer's business saavy a notch or two so that it was on par with your I.Q., what would you think if you received this letter? I don't understand how this letter could have passed scrutiny with the FDCPA as it clearly conveys an impression that the debt is valid and enforceable. Any recipient of the letter would have to make the assumption that the collection agency sent a letter advising that a debt has been transferred because it had a valid and enforceable debt. That would just be implied. At least it would be implied to me. May I should move into a group home.

Secondly, while I understand the paper thin distinction between a debt and its enforceability, I don't understand why the court believes that such a distinction would be valid in context of an FDCPA action. After all, the FDCPA according to the official FTC commentary is to be liberally construed in favor of the consumer to effectuate its purpose. With an edict to construe the FDCPA broadly, I again, do not understand the difference between a debt that is unenforceable and debt that does not exist. In an academic setting, there is a difference; albeit thin. But c'mon, as a practical matter and against the background of the FDCPA's purpose and its construction, that difference is meaningless.

Moral of the story - you can send demand letters to collect expired debts so long as you are not demanding payment or threatening to take action to collect the debt. I still think, however, that this is risky business.

Full post as published by Michigan Collection Law Blog on October 22, 2007 (boomark / email).