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DEBT COLLECTOR AVOIDS FDCPA VIOLATION BECAUSE STATE TOLLING PROVISION PREVENTED DEBT FROM BECOMING TIME-BARRED

The Ninth Circuit Court of Appeals has held that a debt collector did not violate the federal Fair Debt Collection Practices Act (FDCPA) by filing suit to collect a credit card debt because New Hampshire’s tolling provision prevented the debt from becoming time-barred. Avery v. First Resolution Mgmt. Corp., No. 07-35726, 2009 WL 861727 (9th Cir. April 2, 2009).

In Avery, an Oregon resident, obtained a credit card from Providian National Bank in 2001. The cardholder agreement governing the account contained a New Hampshire choice of law provision. After the plaintiff stopped making payments in 2001, First Resolution purchased the account and (through its attorneys) filed suit to collect in 2006. The suit was later voluntarily dismissed.

The cardholder sued First Resolution and its attorneys in the United States District Court for the District of Oregon. The cardholder claimed that the attorneys violated the FDCPA by attempting to collect a time-barred debt. The district court, however, found that the underlying debt was not time-barred and granted the attorneys’ motion for summary judgment on the FDCPA claim.

The court of appeals agreed with the district court that the debt was not time-barred, and therefore the attorneys did not violate the FDCPA by filing suit to collect the debt. The court of appeals indicated that because the cardholder agreement provided that New Hampshire law applied, New Hampshire law, including its statute of limitations and tolling provisions, controlled First Resolution’s claim against the cardholder. According to the court of appeals, New Hampshire law provides for a three year statute of limitations on a credit card debt, but also provides that the statutory period is tolled if the defendant is absent from and residing outside the state at the time the cause of action accrued. The court of appeals concluded that because the cardholder was absent from New Hampshire at all relevant times, the statute of limitations on First Resolution’s claim against the cardholder was tolled, and thus had not run in 2006 when the attorneys brought suit. Even if Oregon law was deemed applicable, the defendants filed suit within the applicable six-year Oregon statute.

The Avery case illustrates the potential impact of tolling provisions, in addition to the importance of determining the appropriate statute and accrual of actions. In most jurisdictions where the applicable statute of limitations has run, a debt collector can collect on a debt (short of filing or threatening a lawsuit) as statutes of limitation typically only bar judicial remedies and do not eliminate the underlying debt. Nonetheless, debt collectors must be mindful of recent scrutiny of time-barred debt. See, e.g., August 2008 Settlement Between New Mexico Attorney General and National Collection Agency (requiring the collection agency to make written and oral disclosures to debtors with respect to the time-barred nature of a debt and its enforceability through legal action) and New Mexico Attorney General Proposed Rules and Regulations Concerning Collection of Debts (requiring oral and written demands for payment of time-barred debts to include certain disclosures); 2007 New York City Introduction 660-A (amending the Debt Collection Agencies ordinance to prohibit debt collection agencies from contacting a consumer about, or seeking to collect, a debt on which the statute of limitations for initiating legal action has expired unless the agency first provides certain information with respect to the consumer’s legal rights); 2004 and 2006 Settlements Between FTC, CAMCO and Others (settling allegations that collectors threatened and harassed consumers to pay old, unenforceable debts). See our Alerts of March 25, 2004 and March 17, 2009.

If you need compliance assistance with respect to the collection of debts that may be time-barred (e.g., identification of applicable statutes of limitations, tolling provisions, disclosure requirements, etc.), please do not hesitate to contact us.

  • Michael Tomkies and Charles Gall