In Manuel v. Merchs. & Prof’l Bureau, Inc., No. 19-50814, 2020 U.S. App. LEXIS 13779, at *8 (5th Cir. Apr. 29, 2020), the Court of Appeals for the Fifth Circuit held that a dunning letter on a time-barred debt was deceptive, and outlined the standards for letters seeking to collect on time-barred debts.
Our decision in Daugherty is central to this appeal. There, a debt collector offered to “settle” the plaintiff’s old credit card debt of roughly $32,000 for a payment of roughly $3,000. We held that “a collection letter that is silent as to litigation, but which offers to ‘settle’ a timebarred debt without acknowledging that such debt is judicially unenforceable, can be sufficiently deceptive or misleading to violate the FDCPA.” [*9] In doing so we “agree[d] with the Seventh Circuit’s interpretation of the FDCPA in [McMahon v. LVNV Funding, LLC, ] and with the Sixth Circuit’s opinion in [Buchanan v. Northland Group, Inc, ] insofar as it is consistent with McMahon.” In McMahon, the Seventh Circuit noted it is not “automatically improper” to seek payment of old debts, as “some people might consider full debt re-payment a moral obligation, even though the legal remedy for the debt has been extinguished.” But the letters at issue, which offered to “settle” time-barred debt that did not state when the debt was incurred and otherwise “contained no hint” that the debt was time-barred, misrepresented the legal status of the debts. The silence as to the debt’s age was worsened by the offers of settlement, “since a gullible consumer who made a partial payment would inadvertently have reset the limitations period and made herself vulnerable to a suit on the full amount.” The settlement offers thus “reinforced the misleading impression that the debt was legally enforceable.” As support, the court pointed to the view of the FTC and CFPB that most consumers do not understand their legal rights regarding time-barred debt. “If unsophisticated consumers believe either that the settlement offer is their chance to avoid court proceedings where they would be defenseless, or if they believe that the debt is legally enforceable at all, they have been misled[.]” Finally, McMahon sought to dispel the idea that its decision requires additional research by debt collectors. While McMahon expected most collectors would know the age and legal enforceability of a debt, it noted that a collector who does not know whether a debt is time-barred could easily “include general language about that possibility.” Our court’s most recent FDCPA case regarding old debt is Mahmoud v. De Moss Owners Association. In Mahmoud, which concerned a foreclosure sale on a condominium unit, the plaintiffs brought FDCPA claims, alleging in part that the attorneys who acted as debt collectors misrepresented the character or legal status of the debt in their collection letters because about 25 percent of the debt was allegedly time-barred. Even assuming that this part of the debt was time-barred, however, we concluded that “[n]o Fifth Circuit authority compels the holding that a nonjudicial foreclosure on a partially time-barred debt can violate FDCPA Sections 1692e or f.” Mahmoud noted Daugherty held that collection of old debt “can be” violative, not that it always is, and distinguished Daugherty on its facts because: (1) all of the Daugherty debt was old while less than 25 percent, at most, of the Mahmoud debt was; (2) the application of limitations was unclear as a bar to nonjudicial foreclosure but was undisputed as to the Daugherty credit-card debt; and (3) the course of events showed the Mahmoud plaintiffs were not misled about what they owed or about the consequence (foreclosure) of nonpayment. Mahmoud distinguished McMahon and Buchanan along the same lines—as cases concerning “dubious exercises of collection activity on indisputably and wholly time-barred debt.” Another Seventh Circuit case relying on McMahon warrants mention. In Pantoja v. Portfolio Recovery Associates, LLC, the collection letter had a settlement offer similar to those in the cases described above. It also stated, “Because of the age of your debt, we will not sue you for it and we will not report it to any credit reporting agency.” Even with this warning, the Pantoja court affirmed summary judgment granted to the plaintiff because (1) the letter did not warn that partial payment would forfeit any limitations defense and (2) it “deceptively said that [the collector] had chosen not to sue [the plaintiff], rather than saying that the debt was so old that [the collector] could not sue him for the alleged debt.” As to the first reason, the court concluded that a collector cannot “lur[e] debtors away from the statute of limitations without providing an unambiguous warning” but declined to prescribe exact language for debt collectors to use. As to the second, the court found the chosen language to be a “careful and deliberate ambiguity[.]” The Ninth Circuit, on the other hand, reversed a grant of summary judgment to plaintiffs for a letter with the following warning: “The law limits how long you can be sued on a debt and how long a debt can appear on your credit report. Due to the age of this debt, we will not sue you for it or report payment or non-payment of it to a credit bureau.” The second sentence matches the vague warning in Pantoja, but the [*13] first sentence informs the debtor that there is a statute of limitations. Indeed, Pantoja quoted this longer warning, which comes from a 2012 consent decree between the Federal Trade Commission and another debt collector. The Pantoja court noted that the effect of omitting the first sentence is that “[t]he reader is left to wonder whether [the collector] has chosen to go easy on this old debt out of the goodness of its heart, or perhaps because it might be difficult to prove the debt, or perhaps for some other reason.”
Turning to the letter sent to the Plaintiff, the Court of Appeals found:
The question, then, is not whether the letters include a settlement offer or litigation threat but whether, read as a whole, they misrepresent the legal enforceability and character of the debt in violation of 15 U.S.C. § 1692e(2) and (10). In answering this question, the district court went further than was necessary. It concluded that a letter is misleading as a matter of law if it lacks warnings “that judicial enforcement of the debt is time-barred or that any partial payment on the debt could defeat the otherwise absolute defense of the statute of limitations.” We and other circuits have framed our holdings in this area with moderation. So we leave for another day the question of whether a letter seeking collection on time-barred debt is misleading as a matter of law by its mere silence as to the age and legal unenforceability. We do not need to draw that line because the letters at issue do not toe it. Instead, the sum effect of the 2017 letters is at least as misleading as any settlement offer from prior cases. Read “as a whole,” several aspects of the 2017 letters from Merchants lead us to this conclusion. First, the letters do not just fail to warn that Texas has a statute of limitations or how that statute may affect the collection methods available to Merchants—the letters do not even state when the debt was incurred. If they had, as the district court noted, they “might give a consumer at least some inkling that the debt might be too old to be legally enforceable.” Although we need not hold that all letters without statute-of-limitations warnings are misleading as a matter of law, the complete silence in these letters works in conjunction with their vague language to mislead the unsophisticated consumer that the debt is enforceable. As for the language itself, although there is no specific settlement offer that would discount Manuel’s debt, the letters are rife with characterization of a soon-to-expire special deal or offer:
• “Important Warning.”
• “You have only one more opportunity to stop all collection efforts.”
• “This is a very special offer. Please take advantage of this now.”
• “Our client has authorized the elimination of this element of your credit history but we need to receive your complete payment immediately!”
There is nothing urgent about this old debt, nor are there any details offered to explain the “very special offer,” nor are these permissible attempts at “moral suasion.” Further, the letters hint at “additional collection efforts” should Manuel not pay the debt:
• “Please remit your balance due immediately in order to prevent any additional collection efforts, such as personal phone calls.”
• “We must notify you of additional collection efforts, such as phone calls, can be anticipated if you don’t pay your account immediately. Pay this debt now to suspend these efforts.”
The unexplained urgent language and the vague threats of additional but unspecified collection efforts perform a similar role to the settlement offers in Daugherty and McMahon. The combined effect of the letters’ vague language and their silence as to the debt’s time-barred nature leaves an unsophisticated consumer with the impression that the debt is enforceable, and that if payment is not levied quickly then adverse collection efforts will follow. That consumer does not know the terms of the special offer or why payment is “urgent” after years have passed. And that consumer does not know what collection efforts will follow if payment is withheld. “Where the FDCPA requires clarity, . . . ambiguity itself can prove a violation.” For the reasons discussed above, we agree with the district court that Merchants’s letters are “example[s] of careful and crafted ambiguity.” “The only reason to use such carefully ambiguous language is the expectation that at least some unsophisticated debtors will misunderstand and will choose to pay on the ancient, time-barred debts because they fear the consequences of not doing so.” Courts have recognized that the risk of partial payment reviving old debt amplifies the effect of the want of limitations-period warnings. Daugherty observed that an “unsophisticated debtor who could not afford the settlement might assume from the letter that at least a partial payment would be advisable” without knowing the risk of restarting the limitations clock. That danger is perhaps reduced but not absent with letters like these. A debtor confronted with an “urgent” letter seeking full payment might also think it advisable to pay some of it. Thus, these letters seeking collection of time-barred debt, filled with ambiguous offers and threats with no indication that the debt is old, much less that the limitations period has run, misrepresent the legal enforceability of the underlying debt in violation of 15 U.S.C. § 1692e(2) and (10).