Does a Debt Collector Violate the FDCPA By Offering to Settle A Time-Barred Debt?

Holzman v. Malcolm S. Gerald & Assocs., Inc.

In a recent published decision by the Eleventh Circuit Court of Appeals, the court reviewed a district court’s dismissal of a set of federal claims against a debt collector for attempting collect on a time-barred debt. As detailed in the Southern Florida District Court case Holzman v. Malcolm S. Gerald & Assocs., Inc., Plaintiff Holzman asserted claims under the federal Fair Debt Collection Practices Act (FDCPA) and various Florida state consumer protection statues arising from an attempt by the defendants to collect on a time-barred debt. In brief, the plaintiff alleged receiving a collection letter that violated § 1692e and § 1692f of the FDCPA for being “false, deceptive, or misleading” and “unfair or unconscionable,” respectively.

On the defendant’s motion, the district court dismissed the plaintiff’s claims under Federal Rule 12(b)(6), finding no violation under either section of the FDCPA and declining to exercise jurisdiction over the remaining state law claims. On review, the appellate court reversed the lower court’s dismissal of the § 1692e claim and reinstated the Florida state law claims. In its review, the Eleventh Circuit panel agreed with the lower court that an attempt to collect a voluntary repayment of a time-barred debt is not “unfair or unconscionable” under § 1692f of the FDCPA but carefully reconsidered the district court’s rationale regarding whether the collection effort was “false, deceptive, or misleading” under § 1692e.

In its decision in Holzman, the court stated its controlling principle that the FDCPA permits a collector to seek voluntary repayment of time-barred debt as long as the collector does not initiate or threaten legal action in connection with its collection efforts. Citing matters in the Fifth, Sixth, and Seventh circuits, the court noted that a collections letter offering to “settle” a time-barred debt would amount to a threat of legal action in violation of § 1692e of the FDCPA. In Holzman case, however, the defendant’s collection letter uses the word “resolve” effectively in place of the word “settle,” which the Holzman court found to be benign compared to “settle.” Finding that the word “resolve” failed to raise the defendant’s collection letter to the level of threatening necessary to violation § 1692e, the district court dismissed the plaintiff’s claim.

As noted by the appellate court in reviewing the Holzman dismissal, the FDCPA is intended to protect even the least sophisticated consumer. Consumers of many levels of sophistication may reasonably be unaware of what time-barred debt is or the fact that it is not illegal to attempt collection of time-barred debt even if legal action could not be sustained. It is far less likely that consumers of any sophistication would understand the legal distinction between a letter that uses the word “resolve” in regard to old debt versus “settle.” At the end of the day, the purpose of § 1692e is to prevent the consumer from being fooled or tricked by a debt collector, and protection of even “the least sophisticated consumer” requires the courts to conflate words like “resolve” and “settle” and any comparable language that suggests the existence of an active dispute or implies that something will happen but for the recipient’s compliance with the letter’s demand.

Using language such as “settle” or “resolve,” the court notes, is not unlawful in itself, so the burden of the lower court’s decision was not unduly heavy on the defendant. Had the defendant used the word “settle” in place of “resolve,” it simply would have been required to also state in the letter that the debt is time-barred and not subject to legal action. The Eleventh Circuit found that this additional requirement, which is designed to protect the consumer under the FDCPA and correlating state laws, is not a heavy burden and should be included in letters where there is any suggestion whatsoever that there will be a consequence for failing to comply with the collection letter’s demands.