Proposed debt collection rule draws fire from consumer groups

Debt collectors can’t take consumers to court to force them to pay debts that become too old. The expiration date, or statute of limitations, on debts varies state to state and for different kinds of debt. A federal proposal calls for debt collectors to disclose that a debt is time-barred.

Just as COVID-19 was taking hold, a Georgia nurse got hit with a double whammy: A call from a debt collector saying she owed $4,700 on a default of a car note from seven years ago.

The collector said her bank account would be garnished if she didn’t pay up.

“We’re barely making it,’’ she told the collector, based on recordings of recent phone conversations between herself, her husband and the debt collector, which she allowed to be shared with the Atlanta Journal-Constitution.

The Georgia nurse was likely being misled. The debt collector would have some difficulty obtaining a court order to garnish of her wages because Georgia law generally prohibits lawsuits against consumers for debts that have gone unpaid for more than six years. Many federal courts have also ruled that lawsuits on old debt violate a national law on fair debt collection practices.

Now, a federal consumer protection agency wants to require debt collectors who know that a debt has expired to notify consumers that they cannot be sued for it. Debt collectors would also have to disclose that if consumers go ahead and make even a partial payment, it can re-set the clock on the debt and enable the collector to sue.

» RELATED: Amid pandemic, Georgia consumers could see bank accounts garnished

» FROM 2019: Consumers face long odds battling debt collectors in local courts

The proposal by the Consumer Financial Protection Bureau follows repeated complaints that debt collection firms threaten or trick consumers into reviving old debts. While the industry and consumer advocates largely agree that rules around old debt need to be clarified, that’s where the consensus ends.

Consumer advocacy groups, including the Boston-based National Consumer Law Center, want the regulator to impose a downright ban on collection of time-barred debt in and out of court. Depending on debt collection firms to police themselves won't work, advocates say.

Aggressive collectors will likely comply with the letter of the disclosure requirements "while continuing to use high pressure collection tactics and limiting the likelihood that consumers will be protected by such disclosures," according to a recent brief by the National Consumer Law Center.

How to comment on the proposal on debt collection

The Consumer Financial Protection Bureau has proposed requiring debt collectors who know that a debt has expired to tell consumers that they can't be sued over it. Collectors would also have to disclose that by making a partial payment, the debt could be revived. (The public has until Aug. 4 to submit comments on the proposal. Submit a comment by clicking here.)

Under consideration are several "model" disclosures. One, for example, would require the collector to say: "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." Another possible disclosure would be: "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, then we can sue you to collect it."

Meanwhile, the industry is opposed to the model language in the proposed disclosures  and say it will likely scare consumers into the false belief that legal action is being taken against them.

“It’s a well-intended measure (but) then you take that next step, and it’s a very murky area,” said Jack Brown, ACA International board member, a national trade group of collection agencies, creditors and attorneys.

It’s not unheard of for consumers to want to pay off debts they owe even if they are not required by law to do so. That’s, in part, why debt collection firms don’t want to ban the collection of time-barred debt, said Brown, also an attorney and president of the Florida-based Gulf Coast Collection Bureau Inc.

Unfair collection practices

Adding to the controversy is that every state sets its own time limit on what constitutes an expired debt, and on steps for reviving a debt even after it expires. In Georgia, a consumer can revive an expired debt by making a partial payment on the account and referencing the debt. Once that happens, the debt collection agency is legally permitted to sue the consumer for the entire amount.

» FROM 2019: Feds propose new limits on debt collectors

The Georgia nurse attempted to negotiate a payment plan with the debt collector on the expired car note, not realizing it could open her to a lawsuit.

She told the debt collector that she and her husband were struggling to make ends meet. “You look at my account right now, as soon as I get paid, it goes to bills and I have like $2.86 in my account at all times,” she told the collector. “That’s how much, so what can we do to where I can make monthly payments and be able to afford to live … to get this paid off?”

“Well, I’m not going to lie to you,’’ the collector replied, according to the recording, which was reviewed by the AJC. “There’s nothing that’s gonna fit in a $2.86 budget.”

She has now written to the debt collector to ask for proof of the default.

Cliff Dorsen is a consumer attorney in Atlanta.

Similar situations in Georgia have sparked recent federal lawsuit. Among them was a lawsuit by a 26-year-old medically fragile man who had become delinquent on “a number of accounts,” mostly resulting from medical treatment, according to his suit.

As part of an effort to get his financial house in order, he called the debt collector to try to address the debt. When he called, the debt collection firm began to propose options for him to pay off the debt and emphasized that he could resolve the debt by making periodic payments over a 12-month period. It didn’t advise him that partial payments would renew the statute of limitations. Then, the collector called back about the debt at a time it knew he wasn’t able to talk.

The action represented ”a misleading and unfair collection practice” in violation of the Fair Debt Collection Practices Act, according to the suit filed May 21 in the U.S. District Court for the Northern District of Georgia.

The man’s attorney, Matthew T. Berry, did not respond to requests for comment, nor did the collector, Midwest Recovery Systems, based in Missouri.

Cliff Dorsen, an Atlanta consumer law attorney who reviewed the lawsuit for the AJC, said the man could have seen the debt revived.

“They’ve got a point,’’ he said. “They’re trying to get him to make a partial payment. At least there is a foreseeable risk that if he does make it, he restarts the statute of limitations.”

Once a lawyer steps in, a threat of court action on time-barred debt is likely to disappear, said Sabrina Parker, an attorney who represents consumers in the Atlanta metro area. All it takes is a phone call to the opposing counsel. “There is a discussion of the facts and it would get them to dismiss it in most cases,’’ Parker said, “because they know I would take it to the limit.”

But advocates note that most consumers facing claims by debt collectors don’t have an attorney to protect their rights.

The public has until Aug. 4 to submit comments on the proposed rule to the Consumer Financial Protection Bureau.

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