CFPB Issues Supplemental Notice of Proposed Rulemaking on Collection of Time-Barred Debts

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Treliant Takeaway:

Treliant knows consumer protection and the Fair Debt Collection Practices Act (FDCPA). If you need assistance with assessing and managing your fair servicing risk, or determining the impact of the proposed rule on your firm’s activities, Treliant can help.

Article Highlights:

On February 21, 2020, the CFPB released a Supplemental Notice of Proposed Rulemaking (SNPRM) to expand on the Notice of Proposed Rulemaking (NPRM) that was issued in May 2019 and the 2013 Advance Notice of Proposed Rulemaking (ANPRM), all on the topic of rules to implement the Fair Debt Collection Practices Act (FDCPA). The SNPRM was issued to address a recurring theme identified in the public comments related to the proposed prohibition on debt collectors suing or threatening to do so on debts the collectors know or should know are time barred. The SNPRM proposes a knowledge standard for requiring disclosures related to time-barred debt, disclosure requirements when collecting on time-barred debt, and model language debt collectors could use to comply with the disclosure requirements.

A time-barred debt is a debt for which the applicable statute of limitations has expired. Statutes of limitations for debt are usually specified under state law. While most statutes of limitations for debt collection are between three and six years, the length of the limitations periods vary by State and debt type. In addition, in some States certain consumer actions can extend or extinguish the statute of limitations on the debt. Some States require debt collectors to disclose whether debt is time-barred or whether the right to collect on time-barred debt can be revived. Federal regulators, including the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) have recognized that attempts to collect time-barred debts can mislead consumers and raise consumer protection risks. Courts have been divided on whether seeking to collect on a time-barred debt without disclosing the debt’s unenforceability violates the FDCPA as a matter of law, or raises a question of fact that must be considered by the court. As a result of differences in state law requirements and court decisions, similarly situated consumers may receive different disclosures or no disclosure when a debt collector attempts to collect time-barred debt.

After considering the comments received on the ANPRM and NRPM, the CFPB desires to reduce the likelihood of consumers being deceived by attempts to collect time-barred debt. The SNPRM proposes that debt collectors that be required to make disclosures under certain circumstances:

  • Debt collectors attempting to collect on debt that the collector knows or should have known is time-barred must 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 the debt collector’s right to file suit to collect can be revived, the debt collector must disclose the fact that revival can occur and the circumstances that could result in revival.

In addition, the SNPRM proposes model forms and language that debt collectors could use to comply with the proposed disclosure requirements.

When the rulemaking process related to the FDCPA is considered along with recent enforcement activities related to debt collection and the CFPB regulatory agenda, it is clear that fair servicing, including debt collection remains a compliance hot topic. Lenders and debt collectors should evaluate their practices through a consumer protection lens, assess their risk, and enhance their compliance management systems if warranted.