Fair Debt Collection: 7.4.7.2 Limited One-Time Offers to Settle
There is a tension when a debt collector makes a settlement offer.
There is a tension when a debt collector makes a settlement offer.
Forgiven debt may be taxable income to the consumer. For amounts forgiven of $600 or over, an IRS Form 1099-C must be sent to both the consumer and the IRS.941 The amount reported on the 1099-C form does not include that portion of the forgiven debt that was incurred as interest or fees, but relates only to forgiven amounts of the loan principal.
FDCPA violations involving student loans are also detailed in NCLC’s treatise on Student Loan Law.947 Although generally not dischargeable in bankruptcy, federal student loans offer a number of special rights to discharge or restructure a student loan obligation, including closed school, false certification, disability, and bankruptcy discharges.948 Thus, it can be deceptive for a student loan collector to indicate that a student is ineligible for a discharge where that is not the case.
This section considers violations both of FDCPA § 1692e (deception) and § 1692f (unfairness) concerning a debt collector collecting on, threatening to sue on, or suing on time-barred debts. Additional court cases involving these issues are summarized in Appx. E.2.4.17, infra.
The determination of the statute of limitations that applies to the collection of a consumer debt may be a complicated legal question. The various considerations are discussed comprehensively in NCLC’s Collection Actions,956 and are summarized in the next three paragraphs.
Prior to Regulation F (effective November 30, 2021), numerous courts had concluded that suing on a time-barred debt violated FDCPA § 1692e (deception) or § 1692f (unfairness).965 Regulation F codified this, providing that, “[a] debt collector must not bring or threaten to bring a legal action against a consumer to collect a time-barred debt.”966
Prior to Regulation F (effective November 30, 2021), courts consistently found FDCPA § 1692e violations where a collector threatens to sue on time-barred debt.982 FDCPA § 1692e(5) prohibits “the threat to take any action that cannot legally be taken” and suing on a time-barred debt is an action that cannot be legally taken.983 The practice should also violate FDCPA § 1692e(2)(A) (debt’s legal status) and § 1692e(10) (deception) because, by threatening, the collector “implicitly represented that
In Midland Funding, L.L.C. v. Johnson,990 the Supreme Court held that a debt buyer’s proof of claim in a chapter 13 bankruptcy case on an obviously time-barred debt was not “false” or “deceptive” in violation of FDCPA § 1692e or unfair under FDCPA § 1692f. The debt collector, Midland Funding, filed a proof of claim that stated the last time that any charge appeared on Johnson’s account was in May 2003, well beyond the six-year Alabama statute of limitations.
In many states, even after the limitations period has run, the consumer’s partial payment on the debt, or even just an agreement to make a payment on the debt, can revive the running of the limitations period.
The Seventh Circuit has held that FDCPA § 1692e does not apply to collector representations directed at the court, such as where attachments to a pleading filed with the court were fabricated and were meant to deceive the court, not the defendant.1040 But even the Seventh Circuit finds that legal pleadings filed with the court can violate FDCPA § 1692e where the claim is that the deception is on the consumer.1041
State debt collection statutes provide the primary consumer remedy for debt collection abuse in many instances. For example, in many states these statutes apply to creditors who are not covered by the federal Fair Debt Collection Practices Act.53 Even in suits against collectors, state remedies, which often include statutory damages and attorney fees, may compare favorably to FDCPA remedies.
This chapter discusses the specific requirements the Fair Debt Collection Practices Act (FDCPA) imposes on debt collectors under section 1692e—including section 1692e’s general prohibition of false, deceptive, or misleading representations, as well as the sixteen enumerated protections that proscribe a broad range of deceptive debt collector misconduct. Section 1692e may contain the most litigated provisions of the FDCPA. The chapter also considers Regulation F1 (effective November 30, 2021) provisions related to FDCPA § 1692e.
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A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:
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(2) The false representation of—
(A) the character, amount, or legal status of any debt; or22
A common debt collector claim is that its FDCPA § 1692e(2) violation was unintentional, that the collector was relying on the creditor’s information, or otherwise simply made a mistake. But, unless the bona fide error defense applies,31 a collector is strictly liable for misstating the amount of a debt, even if that is unintentional.32 This is in keeping with the general notion that the FDCPA is a strict liability statute.33
There are a number of reasons why a collector’s claim that a debt is due may not be correct, such as the debt was paid in full (either voluntarily or by garnishment38), settled,39 discharged in bankruptcy, void as usurious,40 never due in the first place,41 fictitious,42 paid for by medical insurance,43
Regulation F (effective November 30, 2021) provides detailed regulations about the amount and itemization of debts that must be provided to consumers as part of the validation information.59 When considering a FDCPA § 1692e(2) claim based on misrepresentations as to the total amount due, plaintiffs should consider whether the collector complied with these regulations in the validation notice or mirrored these required disclosures or model language60 in other communications.
Regulation F (effective November 30, 2021) provides detailed regulations about the amount and itemization of debts that must be provided to consumers as part of the validation information.83 When considering a FDCPA § 1692e(2) claim based on misrepresentations as to interest charges, plaintiffs should consider whether the collector complied with these regulations in the validation notice or mirrored these required disclosures or model language84 in other communications.
Regulation F (effective November 30, 2021) provides detailed regulations about the amount and itemization of debts that must be provided to consumers as part of the validation information.102 When considering a FDCPA § 1692e(2)(A) claim based on misrepresentations as to accruing interest and fees in a validation notice, plaintiffs should consider whether the collector complied with these regulations or adopted the language and layout of the model
Regulation F does not address itemization or dynamic balance disclosures in communications other than validation notices. Thus, when considering a FDCPA § 1692e(2)(A) claim based on false or misleading representations as to accruing interest and fees in a subsequent communication after the validation notice, one must consider the case law in the relevant jurisdiction.
False representations related to attorney fees are actionable not only under FDCPA § 1692e(2)(A) concerning the debt amount, but also under FDCPA § 1692e(2)(B) concerning “compensation which may be lawfully received by any debt collector for the collection of a debt.” 145 Misrepresentation as to attorney fees can also violate FDCPA §§ 1692e and 1692e(10).
In consumer transactions, the dollar amount of an insufficient funds check is likely to be small, making it impractical to expend significant resources collecting such bad check amounts. In response, collectors may threaten penalties under state bad check laws in the hope that such threats in a letter will result in payment. Collectors may also attempt to increase their recoveries by seeking to collect additional amounts that may or may not be allowed under state law and the contract.
FDCPA § 1692e(2)(B) prohibits a collector’s false representations to the consumer as to the extent of collection services it is authorized to perform. Where a debt collector’s contract with a creditor is limited to mailing a series of dunning letters (called “flat-rate” collecting), it can be deceptive to represent to a consumer that it will take additional collection actions.182