Banking and Finance Law Daily CFPB issues supplemental notice on time-barred debt, proposes required disclosures before collection
Monday, February 24, 2020

CFPB issues supplemental notice on time-barred debt, proposes required disclosures before collection

By Colleen M. Svelnis, J.D.

The CFPB has issued a supplemental notice of proposed rulemaking that would limit use of collection calls on time-barred debt; the supplemental notice would require debt collectors to provide disclosures when seeking to collect time-barred debt.

After conducting consumer research, the Consumer Financial Protection Bureau has issued a Supplemental Notice of Proposed Rulemaking on time-barred debt, defined as a debt for which the applicable statute of limitations has expired, and has proposed requiring debt collectors to make certain disclosures before collecting such debt. The Bureau’s Supplemental NPRM supplements a Notice of Proposed Rulemaking issued in May 2019 to implement the Fair Debt Collection Practices Act (FDCPA). The supplemental notice would prohibit collectors from using non-litigation means to collect on time-barred debt unless collectors disclose to consumers during the initial contact and on any required validation notice that the debt is time-barred. Written comments on the supplemental notice are due by 60 days after publication in the Federal Register. The proposed effective date is one year after the final rule is published in the Federal Register.

The supplemental notice on time-barred debt would require debt collectors who are collecting debts that they know—or should know—are time-barred, to provide time-barred debt disclosures and, if applicable, revival disclosures to consumers. The notice includes proposed timing and formatting requirements and a proposed safe harbor for debt collectors who use the Bureau’s model forms when making the time-barred debt and revival disclosures.

Follow up to May 2019 rule. The supplemental notice is a follow up to the Bureau’s Notice of Proposed Rulemaking in May 2019 that proposed amending Regulation F, which implements the FDCPA, to provide clearer rules regarding debtor harassment, communications with debtors, and new options to address or dispute debts. The May 2019 notice is an attempt to modernize the law by providing clarification on how debt collectors may use newer technologies, such as voicemails, emails, and text messages, that have all emerged since the FDCPA's passage in 1977. The CFPB received over 14,000 comments submitted in response to that proposal, which did not fully address time-barred debt.

According to the CFPB, a large number of comments received in response to the NPRM addressed time-barred debt and the Bureau’s proposed prohibition regarding suits and threats of suit on time-barred debt, including the proposed "know or should know" standard and alternatives for regulating the collection of time-barred debt, such as prohibiting the collection of such debt altogether.

The Bureau conducted testing of consumer disclosures related to time-barred debt disclosures in September 2019. According to the Bureau, the quantitative testing results generally indicate that, in connection with the collection of a time-barred debt, "a validation notice without a time-barred debt disclosure can leave consumers with the misleading impression that debt collectors would be legally allowed to sue to collect the debt." Time-barred debt disclosures, according to the Bureau, could help correct this misimpression. The testing results also indicated that revival disclosures, along with time-barred debt disclosures, would clarify the circumstances in which the debt collector’s right to sue can be revived.

The original proposed rule would prohibit a debt collector from suing or threatening to sue a consumer to collect a debt if the debt collector knows or should know that the statute of limitations has expired. The proposed rule also would prohibit a debt collector from furnishing information about a debt to a consumer reporting agency unless the debt collector has communicated about the debt to the consumer, such as by sending the consumer a letter.

The Supplemental NPRM also proposes to require disclosures only if a debt collector knows or should know that the debt is time barred to address debt collector liability if there was too much uncertainty as to whether a debt was time-barred.

According to the notice, courts generally have agreed that a debt collector violates the FDCPA when its statements would mislead an unsophisticated consumer to believe that a time-barred debt is legally enforceable, regardless of whether the debt collector expressly threatens litigation; and that a debt collector can use disclosures to correct misleading impressions relating to a debt’s enforceability and the possibility of revival that arise from the debt collector’s attempt to collect a time-barred debt. "Given the current state of the law, some consumers may not receive a disclosure about the time-barred status of a debt in collection, while others may receive a disclosure containing language that varies based on jurisdiction."

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