A Proposal to Ban Collecting on Time-Barred Debt

A new National Consumer Law Center (NCLC) report argues that the Consumer Financial Protection Bureau (CFPB) should use its power to ban the collection of statute-barred debts:

In light of the inherent unfairness, deceptiveness and abusiveness that occur when collectors pursue time-barred debt and the inability of disclosures to adequately protect consumers, the CFPB should ban all efforts to collect out-of-statute debt—whether by litigation or other means.

The federal courts have held that the Fair Debt Collection Practices Act already bans debt collectors from suing or threatening to sue on statute-barred debts. However, NCLC says the CFPB should write this ban into its regulations, and completely ban other forms of collection on statute-barred debt.

NCLC argues that statute-barred debts are an even greater problem than the FTC’s 2013 study suggested. The FTC’s study found that about 30% of debts purchased by the largest debt buyers were 3 or more years old and therefore likely beyond the statute of limitation in some states, including Maryland. However, NCLC points out that the FTC’s study counted the “age” of the debt from the “charge-off” date – which is typically 180 days after a consumer fails to make a payment on a debt (the Federal Deposit Insurance Corporation mandates charge-off periods for banks). But because the statute of limitations begins to run at the beginning of that 180 day period, not the end, the FTC underestimated the age of debt.

Without A Complete Ban, Collection Must Be Limited

If the CFPB is not prepared to ban statute-barred collection outright, NCLC proposes restrictions on collection, similar to those imposed on Encore Capital Group by a recent settlement with the New York Attorney-General:

  • No lawsuits to collect debts revived when a consumer made a partial payment
  • No sales of tine-barred debts
  • Explicit disclosures about time-barred debts

In particular NCLC is critical of collectors who push consumers to pay time-barred debts on the pretense that doing so will improve their credit scores:

According to the CFPB, creditors, debt buyers and debt collectors tell consumers that making a payment on their debt will improve their credit report, credit score, or creditworthiness. The CFPB concluded that these statements “are likely to be important to many consumers who view credit reporting as an important determinant of their future access to credit and other opportunities.” These promises are often deceptive, tricking consumers into paying off old debts but resulting in little or no benefit to the consumer.