The Sixth Circuit Court of Appeals ruled 2-1 Tuesday that simply offering a settlement for a statute-barred debt may violate the Fair Debt Collection Practices Act (FDCPA) because a consumer could use the word “settlement” to mean possible could keep a legal deadline and can expect to be sued or that they could be sued in the future.

The case, Buchanan v Northland Group, has generated a great deal of interest from government agencies and trade groups in the debt industry. CFPB and FTC submitted a joint amicus meager support of the plaintiff ACA International and the National Association of Retail Debt Collection Attorneys (NARCA) sided with the defense in its briefs.

The Sixth Circle’s Opinion also fosters a jurisprudence divide between the counties on the matter, with two now holding the position that statute-barred debt settlement offers may violate the FDCPA and two holding the opposite.

The case

The facts of Buchanan v Northland Group are relatively simple and undisputed. Collection agency Northland Group, working on behalf of a debt buyer, sent a letter to Esther Buchanan offering to settle a nearly $4,800 debt for around $1,700. The letter even revealed that the debt had been purchased, including the exact naming of the buyer and seller, and that it had been assigned to Northland for collection.

Buchanan’s debts were already past their state’s six-year statute of limitations. Northland’s letter did not disclose this fact. So Buchanan filed a lawsuit seeking class action status, alleging that the settlement offer was misleading and illegal under the FDCPA.

A district court denied Buchanan’s request for disclosure and granted Northland’s motion to dismiss, concluding that Northland’s letter was not legally misleading. Buchanan then appealed to the Sixth Circuit.

The reasoning of the majority

The main problem in the case was not so much what was in the letter as what was not in it. In their opening summary of the case, the majority cited the lack of meaningful disclosure that the debt in question was barred. They also took issue with the fact that the letter failed to disclose that a partial payment — particularly an amount below the full settlement offer — could restart the statute of limitations and expose Buchanan to legal liability.

This distinction was important because Buchanan’s main argument was that the absence of these disclosures, along with the use of the word ‘settlement’, ‘erroneously implied that Northland had a legally enforceable obligation’.

In examining this claim, the majority pulled out the dictionary and cited numerous examples where the word ‘settlement’ is defined as a settlement of a dispute. But in all the examples given, the financial definition of the word precedes the legal definition.

For example, the Dictionary.com entry for “settled” — as cited in the op-ed — defines the word as “to end (court proceeding) by mutual consent of the parties.” This definition appears as 16^th Entry under a separate law headline. The third and fourth general definitions given by this resource are “pay, as an invoice” and “close (an account) by payment,” respectively.

The details of the definition of the word were important to the majority, as they served as the basis for the ‘plain debtor’ standard by which the case was judged, writing: ‘All these definitions make it plausible to claim that a falsely implies that the underlying guilt is enforceable in court.”

The dissent

District Judge Raymond Kethledge met the “plain debtor” standard used by the majority in his dissent. He noted that Buchanan’s arguments and majority agreement “is not the perspective of the undemanding debtor, but our own perspective as attorneys and judges – whose work is, by definition, done through the vehicle of lawsuits… we have no basis for reading a a single word – “settlement” – from a legal perspective and the rest of Northland’s letter from a plain perspective. On the contrary, we are obliged to apply the simple debtor standard consistently.”

However, he noted that there is a fair point of discussion surrounding the failure to disclose a partial payment that restarts the account’s statute of limitations. But he said Northland’s letter does not invite that outcome.

Kethledge wrote that he would have dismissed the lawsuit outright on legal grounds, rather than returning it to the district court as the majority intended.

Other proceedings and implications for the industry

In fact, the majority of the Sixth Circuit did not rule on the merits of the case. And the CFPB and FTC also did not comment on the final legal result in their brief. Rather, they believed that the district court’s dismissal of the case should be overturned and remanded to that court for further hearing.

Specifically, the Sixth Circle majority said the case should be pursued through investigation and that ultimately “a jury should determine whether the letter is deceptive and misleading.”

When it comes to offers to settle statute of limitations debts, it leaves a lot open. The decision of the Sixth is closely consistent with this a decision last year in the Seventh Circuit, McMahon against LVNV funding, one also supported by a CFPB-FTC briefing. But it contradicts decisions in the Third and Eighth Circuit Courts.

ACA International advised “It is critical for the credit and collections industry and debt buyers alike to evaluate communications with consumers regarding non-legal debt in light of this Buchanan and McMahon.”

Joann Needleman, President of NARCA and nominee to the CFPB’s Consumer Advisory Council, urged caution of a different kind. She noted that comparison offers themselves have come under fire.

In a blog postShe wrote: “It would be easy, not to say comforting, to put it into words Buchanan and McMahon on a shelf and call them the statutes of limitations. You would be foolish to do that. Buchanan and McMahon have more to do with language than with content. Neither court made any distinction as to the word “settlement”; the fact that both cases involve old debts is superfluous. Both courts took the inherent desire of all parties to resolve disputes and otherwise turned that desire on its head.”