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CFPB rule holds debt collectors to higher standard on time-barred debt but falls short of needed protection

WASHINGTON, D.C. – A new rule issued today by the Consumer Financial Protection Bureau will help address longstanding complaints from consumers that they are often sued by debt collectors about money owed long after the statute of limitations has expired.  But it falls short of prohibiting the collection of time-barred debt, which Consumer Reports and other consumer groups had urged it to do.

Under the rule adopted by the CFPB, debt collectors are prohibited from suing or threatening to sue on time-barred debts.  Debt collectors will now be held responsible under a strict liability standard for knowing whether a debt is time-barred.

“Disreputable debt collectors routinely use high pressure tactics to harass consumers and bring old debts back from the dead,” Antonio Carrejo, policy counsel for Consumer Reports.  “We are pleased that the CFPB’s new rule holds debt collectors to a higher legal standard for determining whether a debt is time-barred.  But debt collectors should be barred from collecting time-barred debt without exception.”

Under current law, consumers can only be sued over an unpaid debt for a certain period of time after it was incurred.  The statute of limitation varies from state to state and depends on the type of debt involved.  However, even though the debt may be too old to be collected in court, debt collectors may still contact consumers to convince them to pay it.  If the consumer makes a partial payment or acknowledges the debt, the statute of limitation is reset, meaning the debt is now owed in full and can be enforced in court.

The CFPB abandoned a proposal it originally made that would have required debt collectors to use a model disclosure form when attempting to pursue time-barred debt.  CR and other consumer groups argued that those notices were insufficient citing the CFPB’s own research showing that 35 percent of those given a disclosure notice on time-barred debt incorrectly thought they could be sued on the debt.  In addition, about 30 percent of participants reported incorrectly that the debtor cannot be sued after making a partial payment and about 42 percent reported incorrectly that the debtor cannot be sued after writing the debt collector and acknowledging the debt.

Michael McCauley, michael.mccauley@consumer.org, 415-902-9537