A debt collection agency is going to have to defend allegations that it unlawfully failed to inform plaintiffs that making payments on their debts could revive the statute of limitations, a federal court has ruled.
U.S. District Judge A. Marvin Quattlebaum Jr. found in Alston v. Midland Credit Management that evidence exists to support the plaintiffs’ claims that collection letters they received from Midland violate the Fair Debt Collection Practices Act.
According to plaintiffs Jonathan Alston and Darius Reid, the collection agency sent them misleading and deceptive letters regarding years-old debts, advising them that they would not be sued for the debts and that payment options were available, but neglecting to inform them that by making a partial payment, they may be exposed to civil liability on the full amount of their debt.
“Effectively, if he takes advantage of any of the options, he is in a worse position that if he had done nothing,” the plaintiffs’ attorney, Chauntel Bland of Columbia, wrote in the original complaint.
Bland did not immediately return a message seeking comment.
Not even fine print
In its letter to Alston, Midland stated that “mistakes can happen to anyone” and “everyone deserves a second chance.” Reid’s letter congratulated him for being approved for a discount program designed to save him money. Alston was told that because of the age of the debt, Midland would not sue him for it, but may continue to report it to credit bureaus. Reid was told that because of the age of the debt, Midland would neither sue nor report payment or nonpayment to credit bureaus.
Both letters offered three payment options: a one-time payment constituting 40 percent off the loan balance; six monthly payments constitution 20 percent off; and monthly payments as low as $50.
Neither letter, again, stated that making a partial payment under any of the options would restart the statute of limitations under South Carolina law. According state law, “No acknowledgment or promise shall be sufficient evidence of a new or continuing contract whereby to take the case out of the operation of this chapter unless it be contained in some writing signed by the party to be charged thereby. But payment of any part of principal or interest is equivalent to a promise in writing.”
Court records show that Alston’s debt was charged off in 2014 while Reid’s was charged off in 2010.
Quattlebaum noted that the FDCPA was enacted to curtail “abusive, deceptive, and unfair” debt collection practices, and that whether a practice is false, misleading, or deceptive is determined from the vantage of the “least sophisticated consumer,” an objective test that evaluates claims based on how that consumer would interpret the alleged offensive language.
According to Alston and Reid, the failure to include language regarding the effect of a partial payment puts them into a “difficult position,” enticing them to “save a great deal of money” but not advising them that it could terminate their absolute defense.
In moving for dismissal, Midland made three arguments. According to the defendant, the plaintiffs failed to state a claim under the Act because the collection letters did not contain an explicit threat of litigation; the Act does not require defendant to advise the plaintiffs about the statute of limitations revival; and it is not required to provide debtors with legal advice.
Midland cited the 8th U.S. Circuit Court of Appeals’ decision in Freyermuth v. Credit Bureau Services in support of its first argument, a holding that no FDCPA violation occurs, absent “threat of litigation of actual litigation,” where a debt collector attempts to collect on a potentially time-barred but otherwise valid debt. Quattlebaum noted that other courts, including district courts within the 4th Circuit, have held that in certain circumstances, an express threat of litigation is required to state an FDCPA claim for unfair or deceptive collection practices. But in a more recent line of cases, he wrote, four circuit courts of appeal have found that a collection letter may violate the Act without expressly threatening litigation.
Regarding the two remaining arguments, the district court cited ambiguous controlling law and a lack of binding authority in holding that it could not say that the plaintiffs’ claim is not plausible on its face.
“After accepting all factual allegations in Plaintiffs’ complaint as true and drawing all reasonable
factual inferences from those facts in Plaintiffs’ favor, the Court finds that Plaintiffs state a claim
on which relief can be granted in Count I of their complaint,” Quattlebaum wrote. “According, Defendant’s motion is denied as to Count I.”
An attorney for the defendant, Robert Brown of Willson, Jones, Carter & Baxley in Columbia, had not returned a message seeking comment by press time.
The 10-page decision is Alston v. Midland Credit Management, Inc. (Lawyers Weekly No. 002-147-18). An opinion digest is available online at sclawyersweekly.com.
Follow Heath Hamacher on Twitter @SCLWHamacher