WASHINGTON, DC – The Center for Responsible Lending (CRL), The Leadership Conference on Civil and Human Rights, NAACP, National CAPACD, and UnidosUS submitted a joint comment to the Consumer Financial Protection Bureau (CFPB) in response to the agency’s Supplemental Notice of Proposed Rulemaking (Supplemental NPRM) that fails to protect consumers against stale, time-barred “zombie” debt, for which the statute of limitations has expired.
The rule supplements a proposed debt collection rule that the CFPB released last year. The Supplemental NPRM gives the green light for debt collectors to collect old debt as long as consumers receive certain disclosures at the time of initial contact and for any required validation notice. Debt collectors would not be held strictly liable for knowing whether a debt is time-barred when suing or threatening to sue a consumer, following the same flawed legal standard the CFPB proposed for comment in May.
“We continue to urge the Bureau to ban the collection of time-barred debt in and out of court, as well as to adopt a strict liability standard for debt collectors in knowing whether a debt is time-barred. We also urge the Bureau to prohibit the revival of time-barred debt. Without major changes, the Bureau’s approach to time-barred debt and the proposed disclosures will perpetuate abusive practices, harm already struggling families, and widen the racial wealth gap," wrote the group in their comment to the CFPB. “Families are already vulnerable. The final rule must protect consumers and not increase the likelihood that consumers will encounter abusive debt collection practices, such as collectors tricking consumers into making payments on stale debt that cannot be pursued in court. In the face of the evidence that debt collection hurts communities of color the most, which includes collectors’ pursuit of this stale debt, it is clear that now is not the time to craft policies that drives marginalized families deeper into poverty.”
The group also urged the CFPB to abandon the disclosures proposed and conduct further testing, if the Bureau determines not to ban all collection of time-barred debt.
The Bureau is not using or proposing to use a racially representative sample of consumers who actually experience debt collection in crafting its proposals. Their testing sample did not include sufficient representation of Black and Latino consumers when, by the Bureau’s own landmark Survey of Consumers Views on Debt found that 44% of Black people had experienced debt collection activity in the prior year -- a rate 50% higher than among white individuals, and that the rate for Latino people was 25% higher than for white people.
Statutes of limitations exist because of policymakers’ concern that evidence becomes less reliable with the passage of time. Debt collectors, including debt buyers, typically flood courts with collection cases regardless of whether the debt is time-barred. The Supplemental NPRM, which merely requires disclosures, does not protect consumers from collection of time-barred, zombie debt.
Since the creation of the CFPB, abusive debt collection complaints have been at the top of consumer complaints filed with the CFPB and the Federal Trade Commission. Debt collection abuses are harmful no matter where they occur, but they disproportionately burden communities of color due to systemic discrimination in housing, employment and financial services. Yet, the CFPB, under its current leadership, has proposed a debt collection rule that would favor these financial predators over consumers.
In its early years, the CFPB held debt collectors accountable and won key important consumer victories. Under CFPB's first director, Richard Cordray, the agency filed more than 25 federal enforcement actions against debt collectors and creditors for engaging in deceptive and abusive debt collection activities. Collectively, the cases awarded more than $300 million in restitution; another $100 million in civil penalties have resulted from these filings.
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