Tatis v. Allied Interstate: a settlement offer on a debt too old to sue on
A collector wrote to a New Jersey woman offering to settle a ten-year-old gym membership debt for about ten cents on the dollar. The six-year time to sue had already run, and the letter did not say so. In February 2018 the Third Circuit held that calling the offer a settlement could mislead a consumer into thinking the debt was still legally enforceable, and sent her FDCPA case back to the trial court.
A public record, not a client of this firm. Everything on this page comes from the Third Circuit's opinion cited at the end. The case reached the court of appeals on a motion to dismiss, so no court decided whether the letter actually misled anyone or awarded damages. Usher Law Group did not represent anyone in this matter, we publish no results of our own, and nothing here predicts the outcome of any other case.
More than ten years before the letter arrived, Michelle Tatis ran up a debt of $1,289.86 to Bally Total Fitness. The debt passed to a collector, Allied Interstate, LLC.
Allied sent her a letter dated May 18, 2015. It said the creditor "is willing to accept payment in the amount of $128.99 in settlement of this debt." She could take advantage of this settlement offer, the letter said, if Allied received the payment, or another mutually acceptable payment arrangement was made, within 40 days.
What the letter did not say was that the debt was too old to sue on. New Jersey gives a creditor six years to bring a debt-collection action (N.J.S.A. 2A:14-1). By May 2015 that time had long since run. If Allied or the creditor had sued, Tatis would have had a complete defense.
She filed a class action in federal court in New Jersey. She said she read the word "settlement" to mean she had a legal obligation to pay, and that the least sophisticated debtor would read it the same way.
What the law says
The Fair Debt Collection Practices Act forbids a debt collector from using "any false, deceptive, or misleading representation or means in connection with the collection of any debt" (15 U.S.C. § 1692e). The statute lists sixteen examples, including falsely representing the "legal status of any debt" (§ 1692e(2)(A)), but the list is not exhaustive.
Courts in the Third Circuit, which covers New Jersey, judge a collection letter from the perspective of the least sophisticated debtor. The question is not whether a careful lawyer would be misled, or whether this particular consumer was. It is whether the letter could mislead a consumer who reads with care but has no legal training.
An old debt is not erased in New Jersey when the time to sue runs out. The debt still exists. What changes is that the creditor can no longer enforce it in court. That gap is where collection letters on old debts can mislead.
What the courts did
District Judge John M. Vazquez dismissed the case in September 2016. He relied on an earlier Third Circuit decision, Huertas v. Galaxy Asset Management, 641 F.3d 28 (3d Cir. 2011), which he read to mean that a letter on a time-barred debt violates the FDCPA only if it threatens legal action. Allied's letter threatened no lawsuit. He also found it significant that under New Jersey law a partial payment would not revive the time to sue, so the letter could not trick her into restarting the clock.
On February 12, 2018, the Third Circuit vacated the dismissal in a precedential opinion by Judge Hardiman, joined by Judges Chagares and Jordan.
- No threat is required. The court said Huertas does not create a rule that only a threat of suit can make a letter on an old debt misleading. The question is always whether the letter, read as a whole, could mislead the least sophisticated debtor about the debt's legal status.
- The word "settlement" matters. Dictionaries define "settle" to include ending a lawsuit. Black's Law Dictionary defines a settlement offer as an offer to avoid or end a lawsuit or other legal action. A consumer could read "settlement offer" to mean the debt could still be enforced in court.
- Other circuits agree. The court joined the Sixth, Seventh and Fifth Circuits, which had reached the same conclusion about settlement offers on time-barred debts.
The court was careful about the limits of its ruling. It said settlement offers and requests for voluntary payment on stale debts are not automatically deceptive, and it did not require collectors to use any particular words, such as a statement that the time to sue has run. It held only that a letter must not lead the least sophisticated debtor to believe she is legally obligated to pay a time-barred debt, and that Tatis had stated a plausible claim. The case went back to the district court. This page does not report what happened after remand.
What it means for you now
Federal Regulation F now draws a bright line: a debt collector may not sue or threaten to sue on a time-barred debt (12 C.F.R. § 1006.26(b)). Tatis covers the quieter problem, the letter that never mentions a lawsuit but still suggests you have to pay. Our page on zombie debt explains how to tell whether a debt is too old.
- Find the last payment date. The clock usually runs from the default or last payment. Your own bank records, old statements and your credit report help.
- Read the letter as a whole. Settlement language, deadlines and discounts on a debt that is past the time to sue are what the Third Circuit said could mislead.
- Do not assume you must pay. You can dispute the debt in writing within the validation period and ask for the original creditor's name and address.
- If you have been sued, do not ignore the papers. The time limit is a defense only if you raise it, and the answer deadline is short. Read sued by a debt collector.
The FDCPA requires a collector found liable to pay the consumer's reasonable attorney's fees and costs. The claim must be filed within one year of the letter. New Jersey's rules are collected on our New Jersey page; New York's three-year rule for consumer credit is on our New York page, and Florida's time limits are on our Florida page.
The pages this story points to
Zombie debt
Old debts, the time limits, and what a collector may and may not say.
Read →New Jersey law
The six-year limit, the Consumer Fraud Act and the federal rules.
Read →Debt you do not owe
How to dispute, and what the collector must do next.
Read →Sources. Tatis v. Allied Interstate, LLC, 882 F.3d 422 (3d Cir. 2018), No. 16-4022, opinion (Third Circuit); opinion text (Justia); 15 U.S.C. § 1692e; 12 C.F.R. § 1006.26.
Common questions
Is it illegal for a collector to ask me to pay a debt that is too old to sue on?
Not by itself. The Third Circuit said a settlement offer or a request for voluntary payment on an old debt is not automatically deceptive. What the FDCPA forbids is a letter that, read as a whole, would lead the least sophisticated consumer to believe she has a legal obligation to pay. Federal Regulation F separately forbids suing or threatening to sue on a time-barred debt.
How long does a creditor have to sue on a debt in New Jersey?
The court applied New Jersey's six-year statute of limitations for debt-collection actions, N.J.S.A. 2A:14-1. When the six years have run, the consumer has a complete defense to a lawsuit, but the defense has to be raised.
If I pay part of an old debt, does the clock start over?
It depends on the state. The trial court in Tatis noted that under New Jersey law a partial payment would not revive the time to sue. New York's CPLR 214-i says the same for consumer credit transactions. Other states have different rules, so check before you pay anything on a very old debt.
Tell us what they did.
One conversation with an attorney, in your language. We tell you which laws the collector or the credit bureau broke, which deadline runs first, and what to save this week. If it is not a case we can take, we say so and tell you where to go.
(718) 484-7510The FDCPA and the FCRA require a company found liable to pay the consumer’s reasonable attorney’s fees and costs. Our fee arrangement is confirmed in a written retainer before we begin. English, Russian and Spanish in-house; an interpreter for any other language.