On March 11, 2014, the Seventh Circuit reversed the trial court’s dismissals of two Fair Debt Collection Practices Act (FDCPA) actions that challenged dunning (collection) letters offering to settle debts subject to the statute of limitations. Debt collectors often send dunning letters seeking repayment of time-barred debts and the Third and Eight Circuits have held that dunning letters of this type do not violate the FDCPA unless litigation is threatened.

The Seventh Circuit, however, has created a split as it held that offers to “settle” time-barred debts may falsely suggest that the debt is actually legally enforceable. McMahon v. LVNV Funding, LLC and Delgado v. Capital Mgt. Servs., LP, Nos. 12-3507, 13-2030 (7th Cir. Mar. 11, 2014). The court noted that the FDCPA prohibits “actions that the collector cannot take” and prohibits any “misleading representation” from being provided to consumers.  

Importantly, both the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) filed amicus briefs in McMahon. Both agencies have likewise filed supporting briefs in the Sixth Circuit case Buchanan v. Northland Group, Inc. No. 13-2523.  

At field meetings, Director Cordray has reiterated the CFPB’s focus on debt collection practices as illustrated by the CFPB’s Advance Notice of Proposed Rulemaking (ANPR) for regulating the debt collection industry. State attorneys general are following suit. Thus, it is critical for the debt collection industry and debt buyers alike to evaluate communications with consumers in light of these decisions.