Third Circuit Holds Debt-Collection Letter Offering Settlement of Time-Barred Debt May Violate the FDCPA

The United States Court of Appeals for the Third Circuit recently reversed a district court’s decision and held that a debt-collection letter that made a settlement offer on a time-barred debt may have violated the Fair Debt Collection Practices Act (“FDCPA”).  See Tatis v. Allied Interstate, LLC, 2018 WL 818004 (3d Cir. Feb. 12, 2018).  In the putative class action, defendant sent a letter to plaintiff stating that it would be “willing to accept payment in the amount of $128.99 in settlement of” plaintiff’s $1,289.86 debt.  The letter did not disclose that defendant could not legally enforce the debt because the statute of limitations had run.  The plaintiff filed this action, alleging that the least sophisticated debtor would interpret the word “settle” to imply a threat of a legal action that cannot be taken, which would constitute a false representation or use of deception to collect a debt in violation the FDCPA.  See 15 USC 1692e.  The defendant filed a motion to dismiss, arguing that a Third Circuit decision previously found that offers to settle time-barred debts do not violate the FDCPA.  The District Court, citing the Third Circuit decision in Huertas v. Galaxy Asset Mgmt., 641 F.3d 28 (3d Cir. 2011), agreed and dismissed the action.

On appeal, the Third Circuit vacated the District Court’s decision.  The Court first distinguished the present case from the Huertas case, in which the debt collector sent a letter to a debtor regarding a time-barred debt that asked the debtor to call to “resolve this issue.”  Since the Huertas decision, three other United States Courts of Appeals—in the Fifth, Sixth and Seventh Circuits—have addressed the question of whether offering to “settle” a time-barred debt is misleading under the FDCPA, and all three held that it was misleading because the word “settle” could imply legal action to the least-sophisticated debtor.  The Third Circuit agreed with the rationale of these other courts, and held that “[b]ecause the words ‘settlement’ and ‘settlement offer’ could connote litigation, the least-sophisticated debtor could be misled into thinking Allied could legally enforce the debt.” 

For a copy of the decision, please contact Michael O’Donnell at, Michael Crowley at or Dylan Goetsch at