Legislation set to be introduced in Minnesota later this month would ban the practice known as "re-aging" delinquent accounts, making it more difficult for debt buyers to collect debts - particularly in cases where the amounts owed cannot be verified.

The bill would require debt buyers filing collection lawsuits to produce documents that prove the borrowers being sued actually owe the debts. That paperwork includes a copy of the contract or written evidence of the original debt, an affidavit stating the date and amount of last payment and written proof that the collection company does, indeed, own the account.

Failure to do so could result in fines reaching $2,500 per violation - and consumers would have the right to sue for damages. The Minneapolis Star Tribune published a story about the proposed legislation in Tuesday's edition.

Under current state law, collectors can renew long-delinquent debts even when the statute of limitations has expired by convincing consumers to make small payments, which renews the default date. The bill set to be introduced would make it impossible for debt buyers to do this. Any legal action also would have to include a signed affidavit stating the debt has not passed the statute of limitations.

Minnesota is one of just a handful of states that enable collection agencies to initiate a lawsuit against a debtor simply by serving a summons and without filing documents with the court - a practice known as "hip pocket filing." Many consumers are unaware they have been sued until it's too late, and the collection firm has won a default judgment.

Though other states have passed legislation requiring greater disclosure by debt buyers, New State Law Confirms Debt Buyers' Fears, Sept. 10, 2009, Minnesota would be out in front on the issue if the legislation ultimately is passed, said Gail Hillebrand, a senior attorney with the Consumers Union who tracks state collections laws.

Consumer groups have long argued that the practice of buying and selling huge portfolios of debts opens the door to mistakes. They say debt buyers often pursue consumers who already have repaid the amounts being sought - all because of incomplete records.

When debt buyers acquire portfolios, account information arrives in computerized spreadsheets with the borrower's name, Social Security number and basic account information. In many cases, the records are not complete - and information about past payments or settled accounts is not transferred, according to consumer groups.

Collections & Credit Risk will be updating this story with additional commentary from collection industry insiders. To comment, contact Darren Waggoner at darren.waggoner@sourcemedia.com or 815.463.9008.

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