The National Consumer Law Center wants the Consumer Financial Protection Bureau to ban all out-of-statute debt collections, arguing that the practice of chasing "zombie debts" is unfair, deceptive and abusive.

An NCLC report contends that the enforcement of statutory limits should apply to all collection activities, rather than allowing for a loophole for zombie debt. The report cites a Supreme Court finding that statutes of limitations are meant to protect “defendants and the courts from having to deal with cases in which the search for truth may be seriously impaired by the loss of evidence, whether by death or disappearance of witnesses, fading memories, disappearance of documents or otherwise.” 

The NCLC further wants the CFPB to ban the sale of out-of-statute debt, believing that doing so would eliminate attempts to resurrect zombie debts.

"Debt collectors take advantage of the confusing laws governing the collection of zombie debt to induce people, including seniors, to pay debts that have expired or may not even be theirs," said co-author and NCLC attorney Margot Saunders. "We hope that the CFPB will issue rules that simply ban collection of time-barred debt.”

A 2013 Federal Trade Commission study estimated that more than 30% of delinquent loans purchased by debt buyers were at least six years old, putting them beyond or near the end of the statute of limitations in many states. But the NCLC report believes the percentage could be much higher. 

The FTC's study didn't include information from many small debt-buying operations that collectively are believed to be the biggest buyers of the oldest debts, according to NCLC. The FTC's study also didn't review the age of debt when the buyer made a first attempt to actually collect. 

Understanding debt expiration laws often is complicated because the limitations vary depending on the state. Even within the same state there can be different limits on debts from written and non-written contracts. It can become even more complex when dealing with debt owed to a company in a different state.

Making a payment or even acknowledging an out-of-statute debt also can restart the expiration clock, the NCLC pointed out. The report suggests putting an end to legal action against consumers who restarted the clock by making a payment or acknowledging the debt. 

“Faced with these complexities, consumers cannot be expected to know if the statute of limitation has run on their debt or to understand that by doing nothing they may actually be in a better legal position than by doing something,” writes NCLC. 

The NCLC report cited an example of a debt buyer that admitted to collecting on debts for 10 years or more after the date it purchased the debt. The same company reported successfully collecting debts that were at least 14 years old. Earlier this month, in a related case, a ruling by the Sixth Circuit Court of Appeals reversed a trial court's dismissal of a Fair Debt Collection Practices Act claim in a case involving a challenge to a collection letter offering to settle a debt subject to the statute of limitations.

At issue in the appeal of Buchanan v. Northland Group Inc. was a district court's decision that a debt collector does not mislead a consumer, and thus doesn't violate the FDCPA, by offering a collection settlement without disclosing that the statute of limitations for filing a lawsuit has expired. The Sixth Circuit ruled that a settlement offer to resolve an unpaid debt at a discount without disclosing that the statute of limitations had expired could mislead a "reasonable unsophisticated consumer" into thinking the debt is enforceable in court.

The court stated in the ruling that when a "dunning letter creates confusion about a creditor's right to sue, that is illegal," under the FDCPA. The court cited the Seventh Circuit Court of Appeals decision in McMahon v. LVNV Funding LLC.

The Sixth Circuit ruled that the question of whether a letter is misleading should be determined by a jury. The court thus remanded the Buchanan case back to the trial court for further proceedings to allow the consumer to present evidence that she was misled, confused and deceived by the collection agency's letter. 

ACA last year submitted an amicus brief to the Sixth Circuit in the Buchanan appeal. The brief was filed to provide assistance and insight to the court with respect to the public-policy and due process consequences of a time-barred debt disclosure rule. ACA’s amicus brief fundamentally challenged the Consumer Financial Protection Bureau's and the Federal Trade Commission's position that collectors should be required to disclose to consumers the legal enforceability of debts through lawsuits.


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