During a field hearing yesterday in Brooklyn, the Consumer Financial Protection Bureau announced it was issuing guidance for debt collectors covered by the Fair Debt Collection Practices Act reminding them that they are not allowed to sue or threaten to sue to collect on a time-barred debt, even if they don’t know the debt is time-barred. The guidance attempted to address debt collectors that threaten to foreclose on homes with mortgages — especially second mortgages — where the statute of limitations has expired.
A copy of the advisory opinion can be accessed by clicking here.
“We are looking for covered debt collectors who are breaking the law, and we will work closely with state enforcement agencies to go after offenders,” CFPB Director Rohit Chopra said during the field hearing, held at the Brooklyn Law School. “People can also sue debt collectors under the FDCPA themselves for this behavior.”
The focus of the CFPB’s guidance and field hearing was second mortgages, mostly taken out before the 2008 financial crisis, that were used to help finance 100% of the purchase price of a house. Because home prices declined after the crisis hit, many holders of second mortgages opted not to foreclose and instead purportedly sold the debts “often for pennies on the dollar,” according to the CFPB, without offering any additional data. Now that home prices are rising, the new owners of the mortgages are reaching out to homeowners with demands to repay the balance or face foreclosure. But the statute of limitations on some of those mortgages has expired and foreclosure is no longer an option, the CFPB noted.
Under Regulation F, collectors are prohibited from suing or threatening to sue on time-barred debts, and like the FDCPA, this is a strict liability standard.
The CFPB also noted that non-foreclosure debt collection-related activities, like communicating with consumers about defaulted mortgages, can also be covered by the FDCPA. “FDCPA debt collectors undertaking such activity are subject to the other requirements and prohibitions of the statute and Regulation F when collecting debt whether or not that debt is time-barred,” the CFPB wrote in its guidance. “These include, for example, the prohibition on debt collectors:
- Falsely representing the character, amount, or legal status of any debt
- Threatening to take any action that cannot legally be taken or that is not intended to be taken
- Selling, transferring for consideration, or placing for collection a debt that the debt collector knows or should know has been paid or settled or discharged in bankruptcy.
They also include, for example, the requirement that debt collectors: identify themselves as a debt collector in all communications with the consumer (except formal pleadings in connection with a legal action); provide the consumer with validation information in certain circumstances; and respond to consumer disputes adequately before continuing to collect.”