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CFPB’s Final Debt Collection Rule Fails to Fully Ban Collection of Stale, Time-Barred Debt

Friday, December 18, 2020

WASHINGTON, D.C. – Today, the Consumer Financial Protection Bureau (CFPB) released the second part of its final debt collection rule, which includes new provisions on time-barred or “zombie” debt for which the statute of limitations has expired, validation notices, and language access, among others. The first part of the rule, released in October, focused on telephone calls and electronic communications.

Despite the urging of many advocacy organizations, including the Center for Responsible Lending (CRL), the CFPB’s final rule does not ban the collection of time-barred debt out of court. However, enforcement actions reveal the widespread practice of debt buyers threatening suit on stale debts, often tricking consumers into paying or acknowledging such debts and unwittingly “reviving” it. Overwhelming evidence shows many of these cases result in default judgments based on scant representations contained in a complaint.

In a victory for consumers, however, the final rule adopted a “strict liability” standard that holds collectors accountable for violating the Fair Debt Collection Practices Act (FDCPA) by suing or threatening to sue consumers for a time-barred debt.

Center for Responsible Lending litigation counsel Yvette Garcia Missri made the following statement:

When we pushed the CFPB to stand up for consumers in the most meaningful way: to fully ban the collection of time-barred debt and prohibit the revival of ‘zombie debt’ to prevent the harm and deceit we know it causes people, it failed to do so. This failure is a breach of their responsibility to protect Americans — particularly communities of color, who face disproportionate rates of abusive debt collection practices.

That said, we are pleased the CFPB adopted a “strict liability” standard to hold collectors accountable that violate the Fair Debt Collection Practices Act (FDCPA) by suing or threatening to sue consumers for a time-barred debt. By adopting a ‘strict liability’ standard, the Bureau affirms well-established law that regardless of the collector’s intent, suing or threatening to sue a consumer for time-barred debt is unlawful.

We further applaud the CFPB for abandoning its time-barred debt disclosures that are ineffective at preventing the harms that collection of time-barred debt causes. These disclosures were built on faulty testing that did not reflect a representative sample of consumers—failing to sufficiently include consumers of color, who are disproportionately impacted by collection—or consumers who had recently experienced a debt collection.

The final rule also fails to mandate that collectors provide translated validation notices, making translations optional. Moreover, the final rule does not require collectors to provide a “Statement of Rights,” and instead directs consumers to the CFPB’s website, which is insufficient to protect Limited-English Proficiency (LEP) consumers, who are at higher risk for predatory and abusive debt collection practices.

To address the issues mentioned above, CRL has called on the CFPB to:

  • Fully ban the collection of time-barred debt both in and out of court;
  • Prohibit the revival of debt that was formerly time-barred;
  • Require that debt collectors provide a “Statement of Rights,” as the Bureau proposed in its Small Business Review Panel Outline, and require collectors to provide a Spanish translation of the Statement of Rights; and
  • Require that debt collectors provide a Spanish translation on the reverse of every validation notice and provide translated versions of the validation notice and a Statement of Rights to the consumer in a language the consumer can understand if certain circumstances are met.

The CFPB did not incorporate these recommendations in its final rule.

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Press Contact: Vincenza Previte vincenza.previte@responsiblelending.org