The comment period for the CFPB’s supplemental notice of proposed rule-making regarding the collection of time-barred debt closed on Aug. 4, attracting criticism from banker and consumer groups that it’s not adequately comprehensible.
The American Bankers Association urged the bureau to adopt more accurate and easily understandable disclosures related to time-barred debt, or debt that has run past any applicable statute of limitations. The association also recommended the bureau offer more consumer information on the time-barred debts, also known as “Zombie” debts.
The supplemental proposal was published in January, and complemented the NPRM published in May 2019, which would prescribe rules under Regulation F to govern the activities of debt collectors, as the term is defined under the Fair Debt Collection Practices Act.
The supplemental proposal would require debt collectors to make certain disclosures if the collector knows, or should know, that a debt is time-barred. When applicable, it would also require that debt collectors disclose that a payment made on a debt can revive the statute of limitations and enable the collector to sue to collect.
“ABA recommends that the bureau take responsibility for creating educational resources for consumers regarding time-barred debt and consumer options for addressing such debts, in conjunction with a more general time-barred debt disclosure,” the ABA said in a comment letter. “This would lead to better, more accurate consumer information than the bureau’s proposed disclosures, which are unworkable, legally inaccurate, confusing, and likely to increase, not decrease, litigation over time-barred debts.”
The National Consumer Law Center agreed that the time-barred debt proposal would be too confusing for consumers, and called for the withdrawal of the supplemental proposed rule, and instead bank all collection of time-barred “zombie” debt, especially on behalf of its low-income clients.
“The CFPB’s own testing shows that many people will not understand these disclosures. The proposed rules will only give cover for abusive collectors who use high-pressure collection tactics that harm consumers,” said April Kuehnhoff, NCLC attorney. “Disclosures will not protect vulnerable consumers, who will not understand why they are being contacted about a debt that is too old to sue on, or how making a small payment or acknowledgement could end up reviving the statute of limitations on a debt.”
The consumer law group suggested the CFPB also analyze comprehension of any proposed disclosures by members of communities of color. Citing research by the Urban Institute, NCLC pointed out that 42 percent of residents in predominantly nonwhite communities are much more likely to have debts in collection compared to 26 percent of residents in predominantly white areas.
The Independent Community Bankers of America, however, expressed support for how the CFPB structured the NPRM, particularly the bureau’s omission of language that might have inadvertently covered community banks and other first-party debt collectors.
The bureau expects to take final action in October 2020 regarding the May 2019 NPRM. The implementation of FDCPA has been in progress for almost a decade.