FDCPA Claims Based on Collection of Time-Barred Debt Claims Result in Class Settlement

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Two collection agencies agreed to new disclosure requirements when attempting to collect on time-barred debts, in a settlement agreement preliminarily approved by a United States district court judge in Texas last month. The settlement, arising out of a Fair Debt Collection Practices Act (“FDCPA”) class action involving efforts to collect unpaid medical debts, shows concerns about exposure under general FDCPA anti-deception principles for collecting time-barred debt without disclosures.

Plaintiffs, represented by Catherine Monroe, alleged debt collectors AssetCare LLC and CF Medical LLC had violated the FDCPA and the Texas Debt Collection Act (“TDCA”) by making temporary offers to settle defaulted medical debts without disclosing that the collector could no longer file suit to force payment because the statute of limitations had expired. AssetCare and CF Medical deny all liability.

The settlement provides relief to a class and subclass. The class members include all those who received a letter from AssetCare on behalf of CF Medical between December 31, 2017, and January 21, 2020, seeking to settle a debt defaulted more than four years prior to the letter’s date without disclosing that the debt could not be legally enforced. Those claims arise under the TDCA, which permits recovery of equitable relief and actual damages but not statutory damages. The subclass includes the members of the class whose letters were sent after December 31, 2018. Those claims arise under the FDCPA, which allows recovery of statutory damages, but not equitable relief.

Under the settlement, CF Medical waives collection of the disputed debts, amounting to $41.2 million, and agrees to create a $100,000 settlement fund for members of the subclass, to be distributed pro rata, up to $30 per member. Any records of the disputed accounts will be deleted from the class members’ credit history, and CF Medical will not seek to collect on any accounts for class members, sell or assign those debts, or file 1099-C forms for class members. The settlement also asks the court to enter a mandatory injunction requiring all written communications to debtors regarding payment of a time-barred debt to include a notice that a debt is time-barred, as well as notice whether the time-barred debt will still be reported to a consumer reporting agency. The disclosures do not mention the impact of partial payments on the statute of limitations. Monroe will receive $1,000 as statutory damages under the FDCPA and $5,000 for her services as the class representative. Finally, AssetCare and CF Medical agree to pay Monroe’s attorneys’ fees and costs and to pay $100,000 to the class counsel.

Judge Lee Rosenthal of the United States District Court for the Southern District of Texas approved the preliminary settlement on October 22, 2020. The final hearing is set for March 21, 2021.

In light of this litigation, other collection agencies may wish to review their notification practices when seeking collection of time-barred debts, in order to avoid exposure to similar suits.

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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