On Friday, the Consumer Financial Protection Bureau (CFPB) published a supplement to its Spring 2019 notice of proposed rulemaking on third-party debt collection. The proposed supplemental rule addresses the collection of time-barred debt, which is debt that has run past any applicable statute of limitations.
Specifically, the proposed supplemental rule requires debt collectors to make certain disclosures if the collector knows or should know that a debt is time-barred. It would also require that debt collectors disclose, if applicable, that a payment made on a debt can revive the statute of limitations and enable the collector to sue to collect.
“The bureau proposes to prohibit collectors from using non-litigation means (such as calls) to collect on time-barred debt unless collectors disclose to consumers during the initial contact and on any required validation notice that the debt is time-barred,” according to a news release from the CFPB.
On May 7, 2019, the CFPB released its initial 538-page Notice of Proposed Rulemaking that would update the FDCPA generally. The proposed rule would be the first major regulatory update to the FDCPA since its enactment in 1977 and gives much-needed clarification on the bounds of federally regulated activities of “debt collectors,” as that term is defined in the FDCPA, particularly for communication by voicemail, email, and texts. Friday’s proposed supplemental rule accompanies, rather than replaces, the bureau’s existing proposed rule. Importantly, it includes four new templates for Time-Barred Debt Disclosure (Model Forms B-4 through B-7).
Troutman Sanders previously prepared a whitepaper reflecting the current best understanding of key provisions of the original proposed rule which can be found here.
The FDCPA does not generally apply to creditors collecting their own debts, and thus would not generally apply to banks or other first-party creditors; however, creditors placing debt with third-party debt collectors must monitor vendor compliance with the FDCPA.
The supplemental proposal is the result of numerous comments made on the original proposed rule concerning the collection of time-barred debt. As we have previously reported, courts across the federal circuits have struggled with what is a sufficient disclaimer regarding the statute of limitations on time-barred debt.
Comments on the supplemental notice will be due 60 days after it is published in the Federal Register, which has not yet occurred.
We will continue to provide updates to the Proposed Rule and its supplement through our Consumer Financial Services Law Monitor blog.