Supreme Court Rules on Whether Filing "Obviously" Time-Barred Claims is "Unfair or Unconscionable" Under FDCPA

In November 2016, members of our Bankruptcy & Creditors’ Rights group gave a presentation concerning the Midland Funding, LLC v. Johnson case then pending before the U.S. Supreme Court. The Supreme Court has decided the case, holding that a debt collector who files a claim that is “obviously” barred by the statute of limitations has not engaged in false, deceptive, misleading, unconscionable or unfair conduct and thus does not violate the federal Fair Debt Collection Practices Act (FDCPA). Writing the opinion for the majority in favor of the debt collector, Justice Stephen G. Breyer said that the conclusion on one issue—false, deceptive or misleading—was “reasonably clear.” The second issue—unfair or unconscionable—presented a “closer question,” he said. Some commentators say that the opinion opens the door for debt collectors to purchase time-barred claims for low prices and secure profits, because trustees and debtors will not always object and thereby end up making payments on time-barred claims.

Justice Sonia Sotomayor dissented, in an opinion joined by Justices Ruth Bader Ginsburg and Elena Kagan. Justice Sotomayor said, “It takes only common sense to conclude that one should not be able to profit on the inadvertent inattention of others.” Justice Neil M. Gorsuch did not participate because he had not been seated on the Supreme Court when the case was argued in January.

Before the Supreme Court adjourns for the summer in late June, the justices will rule on a second FDCPA case, Henson v. Santander Consumer USA Inc., and decide whether someone who purchases a claim outright becomes exempt from the FDCPA. This case has enormous implications for the scope of FDCPA liability for debt purchasers.