CFPB Issues NPRM Related to Time-Barred Debt Disclosures

In a move that had been alluded to on a few occasions, the Consumer Financial Protection Bureau on Friday issued a Notice of Proposed Rulemaking (NPRM) related to disclosures that would have to be made when collecting on time-barred debts.

A copy of the proposed rule can be accessed by clicking here.

EDITOR’S NOTE: AccountsRecovery.net is hosting a webinar to discuss this NPRM on Thursday, February 27 at 1pm ET. Joann Needleman, Stefanie Jackman, Rick Perr, and Brit Suttell will discuss the impact of the NPRM during the webinar, which is being sponsored by TCN. You can register here.

The NPRM will be subject to a 60-day comment period that starts once the proposed rule is published in the Federal Register. The NPRM supplements what the CFPB published last May with its proposed debt collection rule.

The NPRM would not affect the lengths of statutes of limitations set by each state, but would establish a national standard for how collectors must attempt to collect on debts where the statutes have expired. Individuals are not allowed to be sued for unpaid debts once the statute of limitations has expired, but collectors can still attempt to collect. In many cases, the courts have decided what a collector can or can not say when attempting to collect on a time-barred debt, and that has created a patchwork set of de facto regulations to which the industry must adhere.

Along with publishing the NPRM, the CFPB also made available the results of a survey it took of consumers related to time-barred debt disclosures. The results of the survey indicated that “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,” according to the CFPB.

The CFPB is seeking comment on the NPRM in a number of areas:

  • The merits of using a “know or should know” standard versus a “strict liability” standard for determining when debt collectors must provide time-barred debt and revival disclosures.
  • The merits of using, as an alternative, a “strict liability” standard with a safe harbor for debt collectors who provide the disclosures when they neither knew nor should have known the debt was time- barred.
  • Whether knowing if a debt is time barred affects or is likely to affect a consumer’s conduct relating to the debt
  • The frequency with which debt collectors should be required to provide required disclosures, including the basis for requiring more or less frequent disclosures
  • Whether additional guidance is needed to address situations in which a validation notice might be re-issued voluntarily because, for example, the consumer requests a copy or a translation
  • Debt collectors’ current practices with respect to disclosing whether a debt is time barred and the circumstances, if any, in which revival can occur
  • Debt collectors’ current practices with respect to revival, including whether and how frequently they sue to collect debts when the right to do so has been revived

Under the NPRM, collectors would be required to clearly and conspicuously disclose:

  • That the law limits how long the consumer can be sued for a debt and that, because of the age of the debt, the debt collector will not sue the consumer to collect it; and
  • If, under applicable law, the debt collector’s right to bring a legal action against the consumer can be revived, the fact that revival can occur and the circumstances in which it can occur.

The CFPB issued a number of proposals that would be included in the validation notice sent to consumers. The proposed disclosures, based on the different laws of each state, are:

  • The law limits how long you can be sued for a debt. Because of the age of this debt, we will not sue you for it.
  • The law limits how long you can be sued for a debt. If you do nothing or speak to us about this debt, we will not sue you to collect it. This is because the debt is too old. BUT if you make a payment or acknowledge in writing that you owe this debt, then we can sue you to collect it.
  • The law limits how long you can be sued for a debt. If you do nothing or speak to us about this debt, we will not sue you to collect it. BUT if you make a payment, then we can sue you to collect it.
  • The law limits how long you can be sued for a debt. If you do nothing or speak to us about this debt, we will not sue you to collect it. This is because the debt is too old. BUT if you acknowledge in writing that you owe this debt, then we can sue you to collect it.

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