3rd Cir Upholds Dismissal of FDCPA and Other Allegations Relating to Time-Barred Debt

The U.S. Court of Appeals for the Third Circuit recently held that a debt collector did not violate the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692, et seq., when the debt collector sent a collection letter to the debtor after the debt had become unenforceable due to the state’s applicable statute of limitations.


A copy of the opinion can be found at: http://www.ca3.uscourts.gov/opinarch/102532p.pdf


Plaintiff-Debtor (“Debtor”) incurred credit card debt in 2001 owed to Defendant Applied Card Bank (“ACB”). The debt obligation was sold to a third-party, which retained Defendant Asset Management Professionals (“AMP”) to collect the debt. In 2009, AMP sent a letter to Debtor indicating that the Debtor’s account had been reassigned, requesting that the Debtor “resolve the issue,” and informing the debtor that the letter was an attempt to collect a debt.

Debtor brought suit against ACB and AMP alleging violations of among other things, the FDCPA and the FCRA, for the attempted collection of a debt which had become unenforceable under the state’s applicable statute of limitations. ACB and AMP filed a motion to dismiss, which the lower court granted. The lower court reasoned “that expiration of the statute of limitations makes a debt unenforceable, but does not extinguish the debt itself, such that neither” the assignment nor the attempt to collect the debt “violated the law or breached any duty.”

The Third Circuit affirmed, first holding that “under New Jersey law, Debtor’s debt obligation is not extinguished by the expiration of the statute of limitations, even though the debt is ultimately unenforceable in a court of law.” “In other words, Debtor still owes the debt – it is not extinguished as a matter of law – but he has a complete legal defense against having to pay it.”

The Third Circuit next held that the debt collector did not violate the FDCPA. The Court reasoned that “when the expiration of the statute of limitations does not invalidate a debt, but merely renders it unenforceable, the FDCPA permits a debt collector to seek voluntary repayment of the time-barred debt so long as the debt collector does not initiate or threaten legal action in connection with its debt collection efforts.” In addition, whether a “debt collector’s communications threaten litigation in a manner that violates the FDCPA depends on the language of the letter, which ‘should be analyzed from the perspective of the least sophisticated debtor.’”

In this case, “even the least sophisticated consumer would not understand AMP’s letter to explicitly or implicitly threaten litigation.” Moreover, “it would be unfair if debt collectors were found to violate the FDCPA both if they include the mandated language (because inclusion would threaten suit) and if they do not (because failure to include a mandatory notice violates the statute).”

The Court also held that the creditors did not violate the FCRA. The Debtor alleged that AMP obtained Debtor’s credit report from a credit reporting agency “without any FCRA-sanctioned purpose” in violation of Section 1681b of the FCRA. However, the FCRA “expressly permits distribution of a consumer report to an entity that ‘intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer.’” In this case, it “was that consumer transaction which ultimately resulted in AMP’s accessing of Debtor’s credit report to collect on his delinquent accounts,” which is an authorized use of consumer information under the FCRA. See 15 U.S.C. § 1681(a)(3)(A).

Finally, the Court affirmed the lower court’s dismissal of Debtor’s complaints under RICO, the state consumer fraud act and the common law duty of good faith and fair dealing. In essence, the Court found no reason why AMP’s “attempts to collect on a time-barred debtor or ACB’s transfer of that debt to a third party violates RICO or breaches the duty of good faith and fair dealing.” In addition, the Debtor’s state consumer fraud claim failed because his complaint is “not based on AMP or ACB’s marketing or sale of merchandise or services to the Debtor.”