Removing Barriers Blog

Supreme Court Rules on Fair Debt Collection Practices Act Issue
Posted May 19, 2017 by CUNA Advocacy

Earlier this week, the Supreme Court ruled on a Fair Debt Collection Practices Act question. In the case,  Midland Funding, LLC v. Johnson, the Court held that the filing of a proof of claim that is obviously time barred is not a false, deceptive, misleading, unfair or unconscionable debt-collection practice. The ruling reversed a lower court decision, in a 5-3 decision.

This case addresses questions about whether in the context of an ordinary civil action, collecting a debt that is known to be time barred is "unfair." The Supreme Court notes that this question of unfairness has in certain courts been based on whether a consumer might unwittingly repay a time-barred debt. It then goes on to express the concern that not allowing collection on this type of debt can significantly diminish force in a Chapter 13 bankruptcy.

In its analysis, the Supreme Court ultimately found that to determine whether a statement is misleading normally "requires consideration of the legal sophistication of its audience." It then goes on to note that Chapter 13 bankruptcy includes a trustee who is likely to understand that a proof of claim is a statement by the creditor that he or she has a right to payment that is subject to disallowance, including disallowance based on untimeliness. 

The CFPB in its outline of SBREFA proposals has also recently discussed limiting the ability to collect on time-barred debt. This has been an issue of discussion at previous Credit Union Advisory Council (CUAC) meetings with the CFPB. During meetings, credit unions expressed concerns that the membership as a whole could be harmed if the ability to collect on rightfully owed debts was arbitrarily curtailed.

CUNA has met with the CFPB on similar debt collection issues in the past and will continue to work with the CFPB to ensure credit union issues are fully understood.