The Consumer Financial Protection Bureau has put out an examiners guide for debt collection agencies. Much of the information is of less interest to debt relief companies but one small section creates an important issue that debt relief companies should pay attention to.
In the past we’ve written about the inclusion of time-barred debt in debt relief programs, including credit counseling and debt settlement. The opinion in the past was the inclusion of this debt could be problematic for debt relief companies since consumers would need to be informed about the debt status before committing to a repayment plan for it.
As an example, let’s take a consumer that is already delinquent on some debts. Depending on where the consumer lives or the age of the debt a creditor, debt buyer, or collector may not be able to sue to collect that debt any more since it has expired under the statute of limitations and is now time-barred.
A debt relief company needs to be aware of the specific disclosures a debt collector is required to give to consumers and make the same disclosures to consumers when enrolling debt. A time-barred debt should be of lesser importance in prioritizing a repayment plan than a debt on which the consumer may still be sued.
The CFPB examiner guidance for debt collectors and debt buyers says the examiner must:
Determine whether the entity has policies and procedures related to debt that is older than the applicable statute of limitations (“time-barred debt”), including how the entity identifies such debt and how it collects on such debt (if at all).
Determine whether the entity sues or threatens to sue on time-barred debt.
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If the entity demands payment on time-barred debt other than through litigation, where permissible, determine what representations, if any, the entity makes in its written and oral communications with consumers regarding the time-barred nature of the debt and its ability to sue on the debt.
CFPB Examination of Debt Relief Companies
If debt relief companies project CFPB pending examination they should pay close attention to this new time-barred rule and make sure that clients are aware if included debt in any repayment plan that has expired under the statute of limitations. If collectors are required to make consumers aware of it, the odds are that debt relief companies will need to do the same as well.
I’m only aware of a few companies that do pay attention to this. None of them are credit counseling groups.
The filtering of unsecured debt by it’s time-barred status is important to properly organize the most efficient repayment of problem debt. If a consumer is unable to afford to meet a repayment plan that satisfies all creditors/collectors, some adjustment will need to be made to prioritize repayment. One easy adjustment is to park time-barred debt off to the side while the debts that can still sue are attended to.
While this parked debt will still accrue interest and fees, if the consumer agrees to this strategy, it will allow the debt relief company to focus on the debt which is of most legal liability to the client.
It’s about time that debt relief companies began to pay closer attention to this and other technical subjects rather than just dropping in all debt without much of a plan.
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