District Court Holds Settlement Letter on Time Barred Debt Does Not Violate FDCPA

A district court in New Jersey recently held that a letter offering settlement on a time barred debt did not threaten litigation and therefore did not violate the FDCPA.  In Lugo v. Firstsource Advantage, C.A. No. 2:15-cv-06405-SDW-SCM, 2016 U.S. Dist. LEXIS 78636 (D.N.J. Jun. 16, 2016), the debt collector sent a settlement letter to the plaintiff which provided

This account has been placed with our office for collection to resolve your delinquent debt. If you wish to settle this account for a lump sum payment of $334.54 within 45 days from the date of this letter, please contact one of our representatives to discuss this settlement.  This offer will remain open for 45 days from the date of this letter and we are not obligated to renew this offer. If you are unable to take advantage of this offer within the 45 days allotted, please contact one of our representatives to discuss payment options.

Complaint, Ex. A.  At the time the letter was sent, the debt was time barred; however, the letter did not disclose this fact.

The plaintiff filed a putative class action alleging the debt collector violated 15 U.S.C. §§1692e and f because it was sent “to mislead her into paying the entire debt, or to deceive her into making partial payment in order to reset the statute of limitations and renew Defendant’s ability to legally collect the debt.”  The court granted the debt collector’s motion to dismiss relying on the Third Circuit’s opinion in Huertas v. Galaxy Asset Management, 641 F.3d 28 (3d Cir. 2011).  The court found that the FDCPA permits the debt collector to seek voluntary repayment so long as it does not initiate or threaten legal action.  The court was persuaded by the fact that the letter set forth a single lump sum payment option and used the word “settle”.  The court concluded that under the Circuit’s “least sophisticated consumer” standard, the letter did not threaten litigation.