On May 15, the U.S. Supreme Court put to rest a theory of liability under the Fair Debt Collections Practices Act (FDCPA or Act). This has a major impact on both the credit and collections industry as well as bankruptcy practitioners who represent creditors.
The court found 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” under the FDCPA, reversing the judgment of the Eleventh Circuit.
Three things were found in this case:
- State law determines whether a person has a “claim” or “right to payment” – In this case, the law of Alabama says a creditor has the right to payment of a debt even after the limitations period has expired.
- A Proof of Claim is Not a Civil Lawsuit – The filing of a lawsuit to collect a debt beyond the statute of limitations is in fact an FDCPA violation.
- The FDCPA and the Code serve separate purposes – With the FDCPA, the Acts work to protect consumers by preventing consumer bankruptcies in the first place. The Code creates and maintains the delicate balance of a debtor’s protections and obligations.
The courts have spent many years stretching the Act beyond what Congress had intended. The FDCPA has seen many interpretations due to a lack of regulation. This case is just another example.
