A federal district court in New Jersey dismissed a putative class-action lawsuit against Total Card, Inc. (TCI), a South Dakota-based debt collector. The plaintiff alleged that TCI violated the Fair Debt Collection Practices Act (FDCPA) when it attempted to collect time-barred debts with payment plan solicitations.

According to the lawsuit, TCI sent a collection letter to a New Jersey consumer who owed $1,648.56 on a past-due cellular telephone bill. The collection letter stated that resolving the debt would "put an end to the calls and letters attempting to collect on this account," but because of the age of the debt, the collector would not file a lawsuit or report the debt to a credit reporting agency.

Despite the time-barred debt disclosure, the plaintiff claimed that the letter was "misleading" under sections 1692e and 1692f of the FDCPA because it failed to advise consumers whether a new debt or contract would be formed or whether the statute of limitations would be revived if the consumer made a payment. TCI, by contrast, argued that under Huertas v. Galaxy Asset Mgmt., a debt collector may seek voluntary repayment of a time-barred debt under the FDCPA if "the debt collector does not initiate or threaten legal action in connection with its debt collection efforts."

The court granted TCI's motion to dismiss. The court first rejected the plaintiff's argument that the collection letter attempted to create a new contract or enforceable debt. Rather than create a new contract, the court held that the collection letter intended only to collect voluntary payments on existing debts. In so holding, the court relied on the letter's language that any payments would "full[y] and final[ly] resol[ve] . . . this account!," "satisfy past financial obligations," and "resolv[e] your account in full."

Next, the court rejected the plaintiff's argument that the collection letter was misleading because it did not warn consumers that partial payments may revive the statute of limitations. This holding relied on a feature of New Jersey statute-of-limitations law providing that a promise to pay only restarts the statute of limitations if it is unconditional and in a signed writing. The court reasoned that a letter that asks a consumer to "[s]imply check a box" to select an installment payment plan is not an unconditional, signed writing. Finally, the court held that the letter was not misleading because it did not threaten legal action and contained a time-barred debt disclosure.

The upshot of the decision is that the court reaffirmed a collection agency's right to collect time-barred debt, provided it does not do so in a misleading manner. We have previously covered issues involving time-barred debt here. Collecting time-barred debt continues, however, to invite litigation and regulatory attention. It is therefore important to follow state law closely and avoid even the appearance of threatening legal action while keeping in mind the least-sophisticated-consumer standard.

Attorneys in Ballard Spahr's Consumer Financial Services Group regularly advise clients on compliance with the FDCPA and state debt collection laws and defend clients in FDCPA lawsuits and enforcement matters. The Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance.


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