U.S. Third Circuit - The FindLaw 3rd Circuit Court of Appeals Opinion Summaries Blog

Settlement Offers Are Misleading in Time-Barred Debt Collection

One wrong word can make a big difference when a debt collector comes calling.

No, it's not a four-letter word. (Debt collectors can be aggressive.) The word is "settlement."

A company broke the law when it offered a settlement on a time-barred debt, a federal appeals court said. In Tatis v. Allied Interstatethe decision revived a class-action lawsuit. 

Fair Debt Collection Practices

The U.S. Third Circuit Court of Appeals said Allied violated the Fair Debt Collection Practices Act by misleading debtors with settlement offers after the statute of limitations for enforcement. The appeals panel said debt collectors may try to persuade people to pay old debts after a statute runs, but cannot mislead them about possible legal action.

"[T]he least-sophisticated debtor could be misled into thinking that 'settlement of the debt' referred to the creditor's ability to enforce the debt in court rather than a mere invitation to settle the account," the judges said.

The judges said using the word "settlement" is not misleading per se. But in context, it could imply that the debt was legally enforceable.

Little Debt, Big Litigation

As a result, the Third Circuit vacated a trial court's dismissal of the case and remanded it for further proceedings. It could be a lot of litigation for a dispute that started with a little debt.

Over ten years ago, Michelle Tatis incurred a debt of $1,289 to Bally Total Fitness. Allied sent her a letter that said the creditor was "willing to accept payment in the amount of $128.99 in settlement of this debt."

The company said she had 40 days to make the payment. At the time, the state's statute of limitations had already run.

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