Third Circuit Holds “Settlement Language” in Collection Letter Can Be Misleading
In a change of course from its prior holding in Huertas v. Galaxy Asset Mgmt., 641 F.3d 28 (3d Cir. 2011), the U.S. Court of Appeals for the Third Circuit rules that the terms “settlement” and “settlement offer,” in connection with collecting of a time barred debt, may connote litigation and thus mislead a consumer. However, the court continues to hold that settlement terms alone do not necessarily constitute deceptive or misleading practices under the FDCPA.
In a unanimous published decision in Tatis v. Allied Interstate LLC, No. 16-4022 (3d Cir.) the U.S. Court of Appeals for the Third Circuit reversed the District of New Jersey’s granting of a motion to dismiss. The lower court had held that a debt collector’s attempt to collect the time-barred debt did not violate the Fair Debt Collection Practices Act (“FDCPA”) because the collection letter was not accompanied by a threat of legal action. In its order overruling the lower court, the Third Circuit deviated from its prior holding in Huertas v. Galaxy Asset Mgmt., 641 F.3d 28 (3d Cir. 2011) and instead looked to the more recent decisions from its sister circuits—the Fifth, Sixth, and Seventh—which all held that the term “settle” could mislead a consumer.
The Third Circuit further held that in the context of a collection letter, the least sophisticated consumer may be misled into thinking that the term “settlement of a debt” referred to court proceedings, as opposed to a mere invitation to settle an account. However, the Third Circuit did not go so far as to hold that these terms are misleading as a matter of law.
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“Third Circuit Holds “Settlement Language” in Collection Letter Can Be Misleading,” by Jonathan M. Robbin, Edward W. Chang, and Scott E. Wortman was published in the Winter 2017 edition of the Real Estate Finance Journal, a Thomson Reuters publication. Reprinted with permission.
This article was first published as a Blank Rome consumer finance litigation alert in February 2018.