Judge Refuses to Dismiss Class-Action Lawsuit Over Collection Letter

McMahon v. LVNV Funding, Resurgent Capital Services, Alegis Group, and Tate & Kirlin Associates, a case that was filed almost six years ago and has already been to the Seventh Circuit Court of Appeals, now has a new twist. A judge refused to dismiss the class-action lawsuit about whether or not a collection letter offering to settle a debt that exceeded the statute of limitations, violated the Fair Debt Collection Practices Act (FDCPA).

In his ruling, Judge Jorge Alonso of the Northern District of Illinois, partially granted summary judgment on behalf of the plaintiffs and denied a summary judgment request on behalf of the defendants. However, Alonso also granted a motion from the defendants to exclude a plaintiff’s expert’s testimony. Judge Alonso did not agree with the defendant’s argument that they should not be defined as a debt collector under the FDCPA. The defendants cited the Supreme Court ruling in Henson v. Santander, which suggests debt buyers should not be considered debt collectors because they do not collect on debts owed to other entities.

The plaintiff in the case filed their lawsuit after they got a letter with an offer to settle a time-barred debt. However, the letter did not disclose that the debt was time-barred.

The District Court initially denied class-action status to the case, but the plaintiffs appealed this decision in the Seventh Circuit. The case was sent back to the District Court after the Appeals Court reversed the decision.

To determine if the McMahon letter was misleading, the District Court reviewed a recent ruling from the Seventh Circuit in the case of Pantoja v. Portfolio Recovery Associates. In the case they reviewed, the collection letter included the language: “because of the age of your debt, we will not sue you for it.” Because the McMahon letter didn’t have similar language, Judge Alonso concluded it was deceptive.

According to Judge Alonso:

“Pantoja held that a letter offering to settle a time-barred debt for a fraction of the original amount and stating, “Because of the age of your debt, we will not sue you for it,” violates the FDCPA because it does not “make clear to the recipient that the law prohibits the collector from suing to collect [such an] old debt.” Based on a straightforward application of that holding to this case, the McMahon letter is deceptive as a matter of law because the McMahon letter does not contain any unambiguous warning about the possibility of losing the protection of the statute of limitations by accepting the “offer” to “settle.”

On whether or not the defendants should be considered a debt collector, Judge Alonso had the following to say:

“The Court fails to see why it should matter if the debt buyer hires a third party to actually collect its debt, i.e., to be the one who interacts with the debtor to obtain payment. If the collection of debts is precisely what sustains the business, unaided by any other significant sources of revenue, then the “collection of . . . debts” must be the business’s “primary purpose.”’

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