CFPB proposal requiring model disclosures doesn’t go far enough to protect consumers from shady debt collection practices
WASHINGTON, D.C. – A proposal by the Consumer Financial Protection Bureau requiring debt collectors to use a model disclosure notice for time-barred debt fails to protect consumers from unfair, deceptive and abusive collection practices, according to Consumer Reports. Instead, CR is calling on the CFPB in a letter today to prohibit debt collectors from going after debt once the statute of limitation has expired.
“Time-barred debts should be considered uncollectible,” said Antonio Carrejo, policy counsel for Consumer Reports. “Aggressive debt collectors sometimes hound consumers for time-barred debt even though they may not be able to prove the debt is accurate or even still owed. The CFPB’s proposed disclosure notices are likely to be more confusing than helpful and won’t stop debt collectors from pressuring consumers into forfeiting their legal protections on time-barred debt.”
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 through the court process, 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.
In its letter to the CFPB, Consumer Reports points out that the CFPB’s own survey found that 35 percent of those given a disclosure notice on time-barred debt incorrectly thought they could be sued on the debt. In addition, when revival disclosures were provided, 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. The CFPB’s survey found that disclosure comprehension was lower for participants with less education and lower income.
Short of prohibiting the collection of time–barred debts, Consumer Reports urged the CFPB to strengthen disclosure notices by requiring debt collectors to indicate that the notice is mandated by federal law. CR also recommended that the disclosure notice make clear that partial payments and acknowledgements of the debt can trigger lawsuits and revive the amount owed. Finally, Consumer Reports called on the CFPB to require collectors to treat debts as time-barred and include the disclosure notice in cases where they are uncertain about the status of the debt.