Debt and deceptiveness in the Sixth Circuit

Buchanan v. Northland Grp., Inc., No. 13-2523 (6th Cir. Jan. 13, 2015).

The Fair Debt Collection Practices Act prohibits debt collectors from misrepresenting the “character” or “legal status” of any debt. This prohibition outlaws not just literal falsities, but any statement that could be misleading to a reasonable but unsophisticated consumer.

Northland sent Esther Buchanan a letter asking her to a pay a debt of about $5,000, but “offering … a settlement” of about $1,500. The letter didn’t mention that Michigan’s statute of limitations had already run on Buchanan’s debt, so Northland couldn’t go to court to make her pay. The letter also didn’t mention that partial payment of a time-barred debt restarts the statute of limitations under Michigan law. 

Buchanan sued Northland under the Fair Debt Collection Practices Act, claiming that the letter had led to believe, falsely, that Northland’s debt was legally enforceable. The district court granted Northland’s motion to dismiss Buchanan’s complaint, ruling that—as a matter of law—the letter wasn’t misleading.

The majority of this Sixth Circuit panel, speaking through Judge Sutton, holds that the letter’s deceptiveness can’t be decided as a matter of law. Instead, it presents a question of fact that must be decided either at summary judgment or by a jury. “Settlement” may have more than one meaning, but to many consumers, “settlement” may imply the settlement of a legally enforceable claim. That potential implication would make the letter here deceptive. A consumer might also infer from the letter that some payment is better than none, when really the opposite is true, since partial payment restarts the limitations clock.

Judge Kethledge dissents, accusing the majority of reading the letter through the eyes of a lawyer, not through the eyes of a consumer. To a lawyer, he says, “settlement” may mean the settlement of a legally enforceable claim, but to an unsophisticated consumer, it would just mean settling her moral obligation to pay a debt that’s no longer legally enforceable.

The dissent does not persuade. Its argument—in its own words—is that “settlement” is not misleading because Buchanan “does have a legal obligation to pay her debt, even though that obligation is no longer enforceable in court.” Talk about looking at this case through the eyes of a lawyer! Technically, yes, Buchanan still counts as a contractual obligor, but it doesn’t make much common sense to say that she has a “legal obligation to pay her debt” when there’s no legal way to enforce that obligation. At any rate, a federal appellate judge is perhaps not the best person to decide what is or is not misleading to an unsophisticated consumer. The virtue of the majority’s approach is that it realizes that’s a question best left to others.