Does the Word “Settlement” Imply Legal Action to the “Least Sophisticated Consumer”?

The Fair Debt Collection Practices Act (FDCPA) is a federal law which protects consumers from unscrupulous collection agencies.  Collection Agencies are prohibited from using unfair, deceptive or misleading means to collect a consumer debt.   In crafting the FDCPA, Congress drafted the law using the “least sophisticated consumer”.  The “least sophisticated consumer” is designed to protect both the shrewd and the gullible.   In Tennessee, the time limit for suing someone on a debt is six years from the last voluntary payment; this is called the statute of limitations. In other words, if a creditor sued a consumer on a debt in which it had been more than six years since a voluntary payment was made by the consumer, the consumer would have an affirmative defense that the debt was time-barred and therefore the case against the consumer could be dismissed.

Collection Agencies Offering "Settlements"

Numerous collection agencies send collection letters to consumers offering “settlement” options in which they attempt to persuade the consumer to set up payments or pay less than what is owed. Often these collection letters are sent to consumers on debts that are time-barred.  If a consumer pays on the time-barred debt, the six-year statute of limitations starts over and the collection agency would have the right to sue the consumer. A recent case from the Sixth Circuit raises an interesting question: does sending a collection letter offering ‘settlement” options on a time-barred debt infer legal action, thus violating the FDCPA?

Does "Settlement" Imply Legal Action

In Buchanan v. Northland Group, Inc., the Plaintiff (Buchanan) argued that using the word settlement on a time-barred debt could lead the “least sophisticated” consumer into believing that legal action could be taken against them (the collection agency was about to sue them) if they did not pay this debt.  Northland Group, Inc. (the Defendant) filed a motion to have the case dismissed arguing that the word settlement would not lead a consumer to believe they would be sued if they did not pay the debt and thus was not a violation of the FDCPA. The District Court dismissed the complaint against Northland Group saying this was not a violation of FDCPA. Buchanan appealed the decision and the Sixth Circuit Court of Appeals concluded that it was plausible that a consumer could infer the word settlement to mean legal action, but only a jury was qualified to make that determination.  The case was remanded back to the District Court where Buchanan could proceed with a jury trial to determine the issue.  However, instead of going to trial, the case was settled without a final determination as to whether using “settlement” language to collect time-barred debts inferred legal action, thus creating a violation of the FDCPA.

The attorneys at Bond and Botes are very knowledgeable regarding the Fair Debt Collection Practices Act, as well as other defenses you may have against creditors and collection agencies.   The FDCPA prohibits debt collectors from engaging in unfair, false, deceptive or misleading means in their attempts to collect a debt.  A debt collector may be violating your Federal rights to fair debt collection. If you feel you are being treated unfairly by a debt collector, please call us and set a free, no-obligation consultation.