Roxanne Daugherty v. Convergent Outsourcing, Inc.
836 F.3d 507, 2016 WL 4709712, 2016 U.S. App. LEXIS 16531 (2016)
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Rule of Law:
A debt collection letter violates the Fair Debt Collection Practices Act (FDCPA) if it could mislead an unsophisticated consumer into believing a time-barred debt is legally enforceable. An offer to 'settle' a time-barred debt without disclosing its unenforceability can be sufficiently misleading to state a claim under the FDCPA, even if the letter does not explicitly threaten litigation.
Facts:
- Roxanne Daugherty accumulated $12,824.24 in credit card debt and subsequently defaulted.
- LVNV Funding, L.L.C. purchased the defaulted debt from the original creditor.
- Over many years, with an interest rate of 8%, the debt increased to $32,405.91.
- By the time of the events in question, the statute of limitations for collecting the debt in court had expired, making the debt time-barred.
- LVNV hired Convergent Outsourcing, Inc. to collect the time-barred debt.
- On January 23, 2014, Convergent sent Daugherty a letter titled 'Settlement Offer.'
- The letter offered to settle the $32,405.91 balance for a 10% payment of $3,240.59.
- The letter did not disclose that the debt was time-barred and legally unenforceable through a lawsuit, nor did it explicitly threaten litigation.
Procedural Posture:
- Roxanne Daugherty filed suit against Convergent Outsourcing, Inc. and LVNV Funding, L.L.C. in the U.S. District Court for the Southern District of Texas, alleging violations of the FDCPA.
- The defendants filed a motion to dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6).
- The district court granted the defendants' motion to dismiss, holding that attempting to collect a time-barred debt does not violate the FDCPA so long as litigation is not threatened.
- Daugherty, as the appellant, appealed the district court's dismissal to the U.S. Court of Appeals for the Fifth Circuit.
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Issue:
Does a collection letter that offers to 'settle' a time-barred debt, but is silent on the debt's unenforceability in court and does not threaten litigation, violate the Fair Debt Collection Practices Act (FDCPA) by being potentially false, deceptive, or misleading to an unsophisticated consumer?
Opinions:
Majority - Dennis, J.
Yes, a collection letter offering to 'settle' a time-barred debt without disclosing its unenforceability can be misleading and therefore violate the FDCPA. The court adopts the reasoning of the Sixth and Seventh Circuits, holding that the FDCPA prohibits any 'false, deceptive, or misleading representation' regarding a debt's character or legal status. A 'settlement' offer implies that a debt is legally enforceable, and sending such an offer for a time-barred debt misrepresents its legal status to an unsophisticated consumer. This is true regardless of whether litigation is explicitly threatened, as the overall impression can be misleading. The court also reasoned that an unsophisticated consumer might not know that making a partial payment on a time-barred debt could restart the statute of limitations, making the 'settlement' offer a potential trap. Therefore, Daugherty's complaint stated a plausible claim for relief under the FDCPA.
Analysis:
This decision aligns the Fifth Circuit with the growing majority of federal circuits (including the Sixth and Seventh) holding that collection attempts on time-barred debts can be misleading under the FDCPA even without an explicit threat to sue. It rejects the narrower view of the Third and Eighth Circuits, which required a threat of litigation for a violation. The ruling strengthens consumer protection by focusing on the overall misleading impression created by language like 'settlement offer,' which implies legal enforceability. This precedent effectively raises the standard for debt collectors in the Fifth Circuit, compelling them to avoid language that could imply enforceability or potentially requiring them to include explicit disclosures that a debt is time-barred.
