District Court Expands on Pantoja, Finds Collection Letter on Stale Debt to Violate FDCPA for Failure to Include Revival Warning

Smith Debnam Narron Drake Saintsing & Myers, LLP

A recent decision from the North District of Illinois has expanded on the Seventh Circuit’s holding in Pantoja v. Portfolio Recovery Assocs., LLC, 852 F.3d 679 (7th Cir. 2017) regarding revival warnings in collections letters on time-barred debt.  Pierre v. Midland Credit Management, Inc., 2018 U.S. Dist. LEXIS 18860 (N.D. Ill. Feb. 5, 2018).  The ruling resulted in summary judgment as to liability for a certified class of plaintiffs due to a collection agency failing to include a warning that payment could revive the statute of limitations on time barred debt.

The facts of the case are simple;the plaintiff, Pierre, defaulted on a credit card she took out with Target National Bank (“TNB”), and TNB sold the debt to Midland Funding, LLC for which the defendant, Midland Credit Management, Inc. (“Midland”), was a debt collector. Midland sent a collection letter to Pierre which stated she had been “pre-approved for a discount program” and gave her three “options” to pay off the $7,578.57 balance. The letter also included the following:

The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it, we will not report it to any credit reporting agency, and payment or non-payment of this debt will not affect your credit score.
Although the letter included the above warnings, it did not explicitly include any warning that payment could revive the debt and restart the applicable statute of limitations.

Pierre filed a class action arguing that the letter violated the FDCPA. In granting Pierre’s motion for summary judgment, the Court found the letter to be false and deceptive in violation of 15 U.S.C. § 1692e(10) as a matter of law. Applying the least sophisticated consumer standard, the Court found that the letter was misleading because it did not include any warning that a partial payment on the debt “could have revived the statute of limitations and subjected [Pierre] to the debt obligation anew.” Pierre, 2018 U.S. Dist. LEXIS 18860, at *4.

Relying on an earlier Seventh Circuit case, Pantoja v. Portfolio Recovery Assocs., LLC, 852 F.3d 679 (7th Cir. 2017), the District Court brushed aside Midland’s argument that such an omission was not a violation of the FDCPA because no revival warning is required. In Pantoja, the Seventh Circuit affirmed summary judgment for a plaintiff where a collection letter “d[id] not even hint, let alone make clear to the recipient, that if he makes partial payment or even just a promise to make a partial payment, he risks loss of the otherwise ironclad protection of the statute of limitations.” Pierre, 2018 U.S. Dist. LEXIS 18860, at *4 (citing Pantoja, 852 F.3d at 684). The Court found this to be the law of the circuit and that any collection letter on time barred debt must contain a revival warning. Although Midland argued that neither the CFPB nor the FTC required revival warnings in the context of letters concerning time barred debt, the Court found that those determinations were not entitled to deference and the Seventh Circuit’s “explicit holding” in Pantoja controlled.

Midland made two other arguments as to why its letter did not violate the FDCPA: (1) Midland’s internal policy is to never restart the statute of limitations, even if a partial payment is made; and (2) state law in the relevant state – Illinois – dictates that a partial payment on otherwise time barred debt does not restart the statute of limitations. The Court was not persuaded. As to Midland’s internal policy, the Court noted that the consumer could face suit if Midland changed its policies, or if Midland sold the debt to another “less principled” collector. On the state law issue, the Court noted that Illinois law was unclear on the point, and that a partial payment “puts [the consumer] in a worse legal position that she would have been in had she done nothing.”

Although Pierre never made any payments as a result of the letter, the Court nevertheless found the lack of a revival warning to be material: “Materiality does not hinge upon whether the plaintiff actually acted in reliance on a confused understanding, but rather whether the misleading letter has the ability to influence a consumer’s decision.” Id. at * 17 (citation omitted). Since a consumer “may well choose” to pay or promise to do so as a result of the letter, the materiality element was met. Id.

Implications of Pierre for Debt Collectors

Pierre makes clear that any letter sent in an attempt to collect on time-barred debt should include a warning that partial payment may “revive” the debt and restart the statute of limitations. This is true even if the collector maintains a policy to never revive a statute of limitations. While a warning may not be required if state law dictates that partial payment on time-barred debt does not revive the statute of limitations, state law must be clear on that point before a warning can be omitted.

This case also serves as a warning that materiality under the FDCPA can be found even if the plaintiff never took any action in response to the letter. As long as the letter “may lead to a real injury,” a court may find it to be materially misleading. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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