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New Rule Requires that Collectors Disclose that a Debt is Time-Barred

posted by Nathalie Martin

Not too surprisingly, people are less likely to want to pay a debt that they can no longer be sued on. This fact has caused one state to require disclosure that a debt is time-barred, in order to comply with the state's unfair practices act. More specifically, the New Mexico Attorney General just released a rule requiring debt collectors to determine whether a debt is time-barred and to disclose this fact when collecting time-barred debt in New Mexico. The rule defines time-barred debt as "any debt that is not enforceable in a judicial proceeding because the applicable statute of limitations has run."A copy of the final rule, as well as the Attorney General's statement regarding adoption of the rule, is available here. For a little more information on how this came about, see this article by UNM psychology Professor Tim Goldsmith and I. We are thinking a few other states might follow suit.

Comments

This is very interesting.
Based on the article (thanks for the link), I guess that the New Mexico law is for "professional" debt collectors, not original creditors.
I would bet that California will follow suit, unless of course, the debt collection lobby is particularly strong there.
Here's a statement I found particularly interesting: "Overall, the FDCPA is an improvement over no law at all, but it still has significant limitations. It is ambiguous in a number of important ways, and most of its provisions are unknown to consumers, who thus have no real way of enforcing their rights under it."
Wonder how we can improve consumer's knowledge of FDCPA and their state's applicable laws?

"Wonder how we can improve consumer's knowledge of FDCPA and their state's applicable laws?"

1. Require meaningful and easy to understand written and verbal disclosures in a similar way NM has for debt past SOL. It effectively killed the collection of SOL debt in the state.

2. Raise the violation cap from 1k to 5k (or higher).

It is an exception to find issuers that due not bundle and sell debt at preset intervals of advanced delinquency. A carve out for original creditors is a talking point. If the collection land scape were to change so dramatically as to find issuers holding onto debt rather than selling, discussion would be more worthy at that time.

I am not certain if added disclosure will benefit the consumer. Here is the point: State law typically governs statute of limitations. However, how is disclosure such as in DC where the last payment date OR an oral promise to pay triggers the tolling period, or in Calif where the start of tolling begins when an account goes into default(not last payment date) or where state language says "generaly the last payment or last purchase date...". I do not disagree that statute of limitation should be enforced but do disagree on how to enforce rather that adding disclosure in a communication. In my 40 plus years, and to date, I have seen or listened to more different descriptions/interpretations that sound good but are more incorrect than correct. Educate the consumer-yes. Adding opportunity to increase cap to $5K or higher-no.

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