When Tennessee Representative Steve Cohen sat down with some other governmental friends and came up with some proposed consumer-friendly changes to the Fair Debt Collections Practices Act (FDCPA -- the main legislative document that proscribes the way debt collectors can interact with consumers), I'm sure he thought it was a great idea. And for a politician looking to make some political hay during economic lean times, there's nothing better than alleging to protect consumers from the collections industry.
It's a tough time to be a regular Joe with too much credit card debt and too much month at the end of your money. That house that seemed like a great idea in 2007 has now fallen so low in value that it's part of a buy-one-get-one free program at most participating 7-11s. (This might just apply only to my own house.) Everyone is now playing Six Degrees of Out-of-Work Kevin Bacon (what's the last thing you've seen him in? And how many of your friends or acquaintances are now currently out of a job? You win!), what with unemployment on a steady increase. Basically, everyone owes and no one has money, and the collections industry -- never a darling -- is often on the wrong end of news stories.
But back to Steve Cohen. He has some proposed changes to the FDCPA that he'd like to see enacted. Specifically, Cohen and cohorts (Illinois's Jesse Jackson, California's Barbara Lee, Washington state's James McDermott, and New York's Gregory Meeks) want to add language to the FDCPA that addresses out-of-stat -- i.e., outside of the statute of limitations -- debt. Specifically, Cohen is looking to accomplish two things (for those who want to brush up on their FDCPA, you can read the entire text here):
(1) Amend Section 811 of the FDCPA by including this language: "A debt collector may not bring, or threaten to bring, legal action against any consumer on a debt in which the statute of limitations has expired."
(2) Amend Section 805 of the FDCPA by including this language: "Communication With Consumers With Time-Barred Debt- In connection with the collection of debt in which the statute of limitations has expired, a debt collector shall disclose to a consumer the following: (1) The debt has been transferred to the debt collector; (2) The creditor no longer holds the debt; (3) As a result of the expiration of the statute of limitations with respect to such debt, the debt collector may not bring legal action against the consumer to collect such debt; and (4) Any payment by the consumer towards the debt may cause the statute of limitations for such debt to reset."
The site I write for, insideARM.com, is a primary news and information source for the accounts receivable management industry. We covered Cohen's proposed FDCPA amendment (currently awaiting a committee) back in July. One of the reasons the FDCPA is of so much interest to the industry (besides how costly and damaging FDCPA infractions can be to not just an individual agency, but to the industry as a whole) is that the somewhat vaguely worded piece of legislation hasn't been significantly or substantially updated since it was first introduced back in the 1970s. The law doesn't address new technologies, new means of communication, or, in the case of Cohen's bill, define what period of time defines a statute of limitation. That's left up to individual states.
Recently, insideARM.com asked several voices in the accounts receivable management industry -- both collections-related and consumer-related -- to give some thought to what Cohen's proposed bill could mean for the industry. We called it FDCPA Round Robin: Voices in the Collections Industry Weigh in on Proposed FDCPA Changes. I thought it might be interesting to look at two of the nine reponses we received. (Of course, all nine can be read by clicking the previous link.) The responses show the challenges and the benefits of looking at an amendment to the FDCPA, and what that can mean for consumers in the long-run.
Tomio Narita, Partner, Simmonds & Narita LLP: "The statute of limitations is an affirmative defense that all consumers have available to them in the event that litigation is initiated in order to collect a debt. The statute of limitations is a product of state law. It is meant to be a “shield” created by state law, not a “sword” created by federal law. Congress should not convert the statutes of limitations that have been established by each of the fifty states into a new cause of action that can be filed against debt collectors. The calculation of the statute of limitations is often a very complicated process which involves an analysis of choice of law issues. For example, courts have reached different conclusions on whether debts for unpaid telephone bills are subject to a two-year statute of limitations period set forth under federal law, as opposed to the period set by the law of the state where the consumer is located. The bill also may have the effect of hampering amicable settlements of debts and causing more lawsuits to be filed against consumers. For example, debt buyers may own a number of accounts where the statute of limitations period is about to run. If this bill passes, the debt buyer may conclude that its account have no value or less value after the limitations period has expired, and it may be inclined to file more lawsuits in order to attempt to collect."
Gerri Detweiler, personal finance expert for Credit.com and co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights: "Questions about the statute of limitations are among the most common questions I get about debt collectors (and I receive a lot!) It’s commonsense to require debt collectors to provide a clear explanation of the statute of limitations and the consumer’s rights. If collectors don’t have enough information to determine the statute of limitations in order to disclose that to consumers, then they certainly shouldn’t be taking those same consumers to court – and winning judgments against debtors who don’t show up because they don’t know their rights."
Mike Bevel is associate editor at insideARM.com, the most credible source of news and opinion for the professional accounts receivable management (ARM) industry. He is also an authority on "Murder, She Wrote" and "Charmed."
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