Regulators Urge Caution and Full Disclosure on Time-Barred Debt Collection

LAS VEGAS — If you are collecting on time-barred, out-of-statute debt, both the Federal Trade Commission and the Consumer Financial Protection Bureau want to make sure you’re disclosing to consumers that they are not legally required to pay the debt, and that partial payment can, in fact, re-start the statute of limitations on the debt.

These comments came Wednesday at this year’s Debt Connection Symposium and Expo in Las Vegas.

A session titled “Impacts of Regulations” featured a panel that included representatives from the CFPB and FTC, a state attorney general, and an attorney specializing in regulatory matters for financial services firms.

When the conversation turned to the matter of out-of-statute debt collection, regulators shared stories of enforcement actions against collection agencies who used unfair or deceptive practices to get consumers to pay a past-due debt. The tenor of the conversation seemed to suggest that any type of collection activity on  time-barred debt was against the debt industry’s best interest.

So a clarifying question was asked of the panel: “But what if someone wants to pay an out-of-stat debt?”

“Collection of time-barred debt is not a violation as far as the FTC is concerned,” said panelist Christopher Koegel, Assistant Director with the FTC, provided that the necessary disclosures are provided to the consumer. Those disclosures must include the fact that debt is out-of-stat, and, therefore, the debt collector has no standing to pursue legal action against the consumer.

However, Greg Nodler of the CFPB reminded the audience that both Mississippi and Wisconsin explicitly bar any attempts to collect out-of-stat debt. (“That may be the only sentence that starts, ‘Mississippi and Wisconsin,’” Nodler joked.)

Collectors also can’t tell a consumer that payment of an out-of-stat debt will remove that debt from the consumer’s credit report, if the debt is still recorded there.

The moderator of the panel discussion tried to clarify: “So, we just can’t sue?” But the answer, per the full conversation of the four gentlemen on the stage — including Dave Felt, of Arnall Golden Gregory LLP; and Doug Gansler, Attorney General of Maryland — seemed to point to more than just an admonition against legal action. The tenor of the discussion seemed to suggest, instead, that a consumer needs a fuller disclosure: Not only can you not be sued, but you do not even have to pay this debt.

Will collection agencies pick up on this subtle clue from federal regulators? It would seem to be not in an agency’s best interest at all to invest energy into an account that also required the agency to inform that payment, legally, wasn’t necessary. And yet, it also seems likely that in suits against collection agencies over out-of-stat debts, it will be those who don’t provide the fullest disclosure language possible who will find themselves in the cross-hairs of this issue.