PHILADELPHIA — The Consumer Financial Protection Bureau’s proposed rule related to lawsuits on “time-barred debts” — those no longer legally collectible under the Fair Debt Collection Practices Act — came under fire from consumer advocates and debt collection agencies at a town hall on May 7.
The proposed CFPB rule would bar a debt collector from suing or threatening to sue consumers in order to collect a debt if the debt collector knows — or should know — that the statute of limitations has expired.
In Pennsylvania, for instance, the proposal would weaken the current standard in comparison to the state’s current regulations, said Michael Froehlich, managing attorney of the Homeownership and Consumer Rights Unit at Community Legal Services Philadelphia. “If the ‘know’ or ‘should have known’ rule does go into effect, it would increase litigation,” he said, adding that in the third circuit of Pennsylvania the courts have held that filing a lawsuit — or threatening to file a lawsuit — on a time-barred debt violates the FDCPA “full stop.”
“It almost grants immunity to debt collectors who sue on these debts,” Froehlich said, “and incentivizes debt buyers and debt collectors to know less about the debt that they’re purchasing, not more.” The proposed rule would require consumer rights attorneys to prove intent through depositions, he said.
Mark Neeb, chief executive of ACA International, acknowledged that time-barred debt was a complicated issue that needed to be further examined before settling on a rule. “There are different statutes of limitations in different states,” he said. “And so, with the transient nature of consumers, what state statute applies? [A consumer incurs a debt] in Pennsylvania and then moves to California — what does that mean? It almost seems like a state issue more than a federal issue.”
Further, a blanket prohibition on the collection of time-barred debt has additional unintended consequences, said Jan Stieger, executive director at Receivable Management Association International. “Having a consumer with a debt on their credit report that they can’t pay off because it’s been expunged hurts the consumer,” she said. “That sort of takes a tool out of the tool box.”
