On Aug. 4, 2020, Better Markets filed a comment letter on a supplementary rule proposal from the Consumer Financial Protection Bureau which amended previously proposed rules governing debt collection practices. This supplementary proposal by the CFPB is an attempt to paper over one of the most glaring issues with the bureau’s flawed proposed debt collection rules: the failure to address attempted collections on time-barred debts.
Time-barred debts are debts that have become so old and stale that they cannot be enforced by the courts. Yet in both the initial proposal and this supplementary proposal, the CFPB aims to allow predatory debt collectors to continue to harass, frighten and confound consumers until they make payments on these ancient and unenforceable debts. By publishing these proposals, the bureau is once again proving that it would rather enable financial predators than attempt to fulfill its statutory and moral obligation to protect hardworking Americans.
States have chosen to pass laws placing statutes of limitations on debts, time frames after which they become unenforceable, to give their indebted citizens a second chance, and to ensure that their debts do not follow them to their graves. But those laws are extremely technical and often confusing for Americans without legal training.
While consumers cannot be obligated to make payments on time-barred debts, they can unintentionally “revive” the debts by making a payment toward the debt or in some cases merely by acknowledging in writing that the debt exists, thereby making them enforceable in courts.
That is why allowing collection agencies to continue harassing consumers about time-barred debts, as the CFPB is proposing to do, is so dangerous. Indebted consumers could accidentally worsen their already precarious financial situation by reviving debts or find themselves prioritizing payments on time-barred debt above necessary expenses or payments on debts that are still legally enforceable.
The bureau intends to address these issues by requiring debt collectors to disclose certain facts about time-barred debts when making collections. However, past experiences with disclosure regimes have proven that they are an unreliable method for protecting consumers, especially when the risks involved are as legally complex as they are in this case. In fact, when the CFPB tested its proposed disclosure forms, it found that a third of consumers were either confused, or worse, misinformed about time-barred debts.
The bureau is also proposing to place the burden of proof for determining if a debt is time-barred on individual consumers rather than the well-funded legal departments of debt collection agencies. Under the proposed rule, a debt collector could illegally threaten to sue a consumer over a time-barred debt and face absolutely no punishment unless the consumer is able to prove that the collection agency knew or should have known that the debt was time-barred. The CFPB has justified this provision by arguing that it could be difficult or expensive for debt collectors to determine if a debt is time-barred, but if such a task is difficult for the well-funded legal departments of collection agencies to make that determination, it will be nearly impossible for indebted consumers to do so.
The CFPB was founded to protect consumers and not to make life easier for collection agencies chasing down decades’ old debts. The bureau should abandon its current course of action and propose debt collection rules that are designed with the interest of working Americans in mind.