With the Consumer Financial Protection Bureau's (CFPB) new Supplemental Notice of Rulemaking (SNPRM) for time-barred debts, statutes of limitations are on everyone's mind. One common concern—shared even by the CFPB itself—is the complexity involved in determining which statute of limitations applies to each particular debt. Each state governs its own laws regarding limitations periods. Different types of debts can have different limitations periods (for example, traditional banking debts v. auto deficiencies).
Choice of law provisions in credit agreements can throw things for a loop as well, as recently highlighted in a court decision out of the District of Maryland. Specifically, the court examined if the issue of a debt being time-barred is a procedural or substantive one. The answer to this question could have a dramatic impact on the determination on a time-barred debt. And, go figure, the answer also lies in an individual state's laws.
So, What Happened?
In Jennings v. Dynamic Recovery Solutions, No. 19-cv-1895 (D. Md. Feb. 27, 2020), a consumer entered into a credit agreement that listed Delaware in the choice of law provision. The consumer, however, received collection letters from the defendant in Maryland, where she presumably resided. The letters contained a time-barred debt disclosure, similar to the one proposed by the SNPRM, but did not contain a revival provision.
Editor's Note: In some states, an expired statute of limitations can be revived if the consumer makes a partial payment or acknowledges the debt in writing. The SNPRM proposes that revival provisions be included in time-barred debt disclosures if they apply. This is very similar to requirements already imposed by certain states with revival provisions.
Why no revival provision? Because Maryland, where the consumer lived, has a law that prohibits the revival of an expired statute of limitations regardless of the consumer's actions. In other words, nothing the consumer does will revive the statute of limitations. If this is the case, then there should be no required disclosure, right?
The Court's Decision and the Complex Determination
Wrong, says the court, because of the Delaware choice of law provision. The court states "The Court must determine the applicable law using the forum state’s choice of law rules."
Under Maryland law, procedural issues are decided under the forum state's laws—meaning, the state that is hearing the case—and substantive issues are decided under the state's laws that are selected in the choice of law by the parties. Typically, the statute of limitations and whether a claim is time-barred is a procedural issue. But, in the context of debt collection, the revival could have a real-world consequence to consumers. The court itself struggled whle making this determination, but ultimately decided that it is a substantive issue.
On one hand, revival of a debt collection action due to the acknowledgement or partial payment of a debt could be framed purely as a qualification of the statute of limitations for those actions, therefore warranting a procedural characterization. On the other hand, whether acknowledgement or partial payment of a debt would reopen a debtor to legal liability for that debt surely affects the real-world activity of debtors; indeed, if debtors knew that they were likely to make themselves vulnerable to suit by making a payment toward a debt, they would be less likely to make that payment than if they knew they would be protected from legal action. The Court determines that the latter characterization is a more accurate and honest characterization of the potential for revival of a debt collection action, and so it concludes that it is a substantive matter.
Since it is a substantive issue, Delaware law would apply in this case, and Delaware has a revival provision for partial payments. For this reason, the court denied this portion of defendant's motion to dismiss.
Was that confusing for you? I'm about to twist this up a little more, so hang on to your hats—we're going down the legal rabbit hole.
The consumer in this case completely availed herself of the laws of Maryland. Not only did she reside there, but she also filed the FDCPA suit there. Had the creditor chosen to file a litigation suit against the consumer, it very likely would have been in Maryland, thus the issue of whether the debt is time-barred would have been a procedural question within that suit. So why is it all of a sudden different simply because it is an FDCPA suit?
On top of that, Maryland's non-revival provisions are some of the most protective in the country for consumers. Why, other than to attempt to score a hefty legal settlement for herself and her attorneys (sound familiar?), would the consumer want to avail herself of Delaware laws if she already has the country's strongest protections?
This short-sighted, self-benefiting tactic of consumers and their attorneys has the potential to considerably harm consumers. If Delaware law applies, and the debt can be revived, then does that mean that creditor can now file collection suits against consumers in Maryland after a partial payment is made post-expiration? Does this mean that the measures Maryland has taken as a state to protect its consumers means next to nothing?
On top of that, the same card agreement that selected Delaware as the choice of law also states that the agreement was made in Delaware. As do many other creditors. Creditors can typically file collection suits in the state where the consumer resides or in the state where the agreement was made. What if creditors all of a sudden started filing all collections suits against consumers in Delaware as a result of decisions like this? That would be a disaster for consumers. Even if creditors were required to file suits only in the states where consumers reside, then wouldn't Maryland law regarding the statute of limitations apply in this case, thus making the claims here moot?
Long story short, statutes of limitations are complicated. Some consumer attorneys take such complexity and, rather than allowing the consumer to benefit from the more conservative interpretation, turn it into a green opportunity for them. I hope the CFPB is watching this, because this is what causes harm to consumers.
If you collect time-barred debt, you need to be aware of how courts are ruling on issues like these. The iA Case Law Tracker can help you keep up with new court decisions and conduct quick, incisive legal research in less time than it takes to pour your morning cup of coffee.