CFPB: Debt Collectors, Consumers Receive Clarity on Time-Barred Debt

Financial Services Law

Proposing a specific limit on debt collectors but also providing a safe harbor for compliance, the Consumer Financial Protection Bureau (CFPB) has issued proposed regulations that would allow debt collectors to contact consumers about time-barred debt as long as the collectors disclose, in the initial contact, that the consumer can no longer be sued for failing to pay. We discuss this CFPB development here.

What Happened

Back in May 2019, we reported on the CFPB’s proposed rulemaking under the federal Fair Debt Collection Practices Act, the first comprehensive formal rulemaking for the FDCPA since Dodd-Frank granted such authority a decade ago.

Although Congress enacted the FDCPA in 1977, there had been no authority prior to Dodd-Frank to issue broad implementing regulations. The CFPB’s proposed new rulemaking in the form of a vastly expanded Regulation F would provide certainty to an area that has long struggled with a patchwork quilt of confusing regulation by enforcement and conflicting court rulings.

In the May 2019 proposal, the CFPB addressed time-barred debt, including that the debt collector “not bring or threaten to bring a legal action against a consumer to collect a debt that the debt collector knows or should know is a time-barred debt.” See proposed Section 1006.26(b). Now, the CFPB has confronted the specific issue of the form of disclosures with respect to time-barred debt by issuing a Supplemental Notice of Proposed Rulemaking (NPRM) on collection of such debt. The CFPB proposal would bar collectors from using non-litigation means (for example, calls or letters) to collect on a time-barred debt unless collectors first disclose to consumers during the initial contact and on any required validation notice that the debt is time barred.

The Supplemental NPRM proposes model language and forms that debt collectors could use to comply with the proposed disclosure requirements. Of note, there are two kinds of warnings identified in the four proposed model forms of disclosure. In the first, the debt collector warns the consumer that, because of the age of the debt, the debt collector will not sue on it. In the second disclosure, the consumer is warned that any payment or affirmation of the debt will revive the right to sue, depending on applicable state law. See proposed Section 1006.26(c).

To review the Supplemental NPRM, click here.

Why It Matters

This remains an area where additional, balanced regulations will be useful to debt collectors and consumers alike. Like the May 2019 proposed regulations, however, the CFPB would require disclosures only if the debt collector knows or should know that the debt is time barred, and this language will continue to bring a measure of uncertainty to future litigation, barring changes through the public comment period. Further, until the rule is finalized, the very existence of these proposed regulations may drive additional consumer suits against the debt collection industry because of the uncertainty as to whether any form of collection notice is viable when it comes to collection of time-barred debt.

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