The Fair Debt Collection Practices Act, FDCPA, can be a harsh and unforgiving statute for debt collectors, setting out fairly exacting standards on acceptable and unacceptable conduct related to debt collection (and providing for fee-shifting). (Some of the FDCPA’s rules are (or should be) nearly self-evident — it is improper to make empty threats, harassing telephone calls, public dissemination of private credit-related information, etc. Other FDCPA rules are less obvious — it sets out a required procedure for when a debt is disputed, for example.)
One bit of solace for debt collectors in the FDCPA is its one-year statute of limitations, a relatively short statute (compared, for example, with other causes of action under federal and state law (six-years for breaches of contract in Minnesota, Minn. Stat. 541.05, two-years for many torts in Minnesota, Minn. Stat. 541.07))(Statute of limitation is the referenced “SOL” short-hand in the heading.)
However, the U.S. District Court, D. Minn. (Tunheim, J.) recently took a somewhat expansive view of the FDCPA statute of limitations. Plaintiff took out a loan in 2004, paid it off in early 2006. In late 2006, defendant debt collector bought the loan from the originating lender and, in early 2007, the debt collector sent plaintiff a demand letter (to pay back a loan that had already been fully paid off).
In April, 2007, plaintiff contacted defendant debt collector and said her loan had been paid off. (She claims she sent proof of pay-off, which the debt collector disputes.) In July, 2007, defendant debt collector sued the plaintiff on the debt. In late 2007, defendant debt collector sought and obtained a default judgment against the plaintiff. That same day, plaintiff’s counsel forwarded documentation proving the loan had been paid off and the parties stipulated to vacate the default judgment. In February, 2008, plaintiff filed her FDCPA complaint.
“The violative act at issue is defendants’ attempt to collect on a debt that [Plaintiff] previously paid in full,” the Court held. Defendants argued that this would mean the statute of limitations would start with their demand letters, the first one in late 2006, and therefore plaintiff’s complaint would be outside the one-year statute of limitations, having been filed in February, 2008. The Court held that it was not persuaded that the demand letters violated the FDCPA because defendants were not aware at the time they mailed the letters that the loan had already been repaid. “To claim that these demand letters violated the FDCPA would be to disregard the requirement that such collection communications be false, deceptive, misleading, or unconscionable.”
However, it would seem that the the collection communications, the demand letters, were false in that they stated that Plaintiff had a debt which she did not in fact have. See Clomon v. Jackson, 988 F.2d 1314, 1320 (2d Cir.1993) (FDCPA is strict liability). The Court, nevertheless, decided that the statute of limitations was not triggered until Plaintiff had allegedly given proof of having paid-in-full after which the debt collector brought a legal action.
If this decision stands and is adopted more broadly, it will extend the one-year statute of limitations for such cases, expanding the risks that such claims impose on the debt collection industry.