Cohen Introduces Fair Debt Collection Improvement Act

WASHINGTON, D.C. – Congressman Steve Cohen (D-TN-9) today introduced legislation – the Fair Debt Collection Improvement Act -- that would bar debt collectors from bringing legal action on a debt in which the statute of limitations has expired against any consumer.

“Consumers must be protected from overzealous debt collectors who are bending the rules to collect,” said Congressman Cohen. “When the original creditor sells their time-barred debts to new collectors, consumers should be informed of the rules and not be misled. My legislation helps consumers recognize and understand the rules of debt collection during these tough economic times.”

When debts fall outside the statute of limitations (generally 10 years), many creditors write these debts off their own balance sheets but sell the debts for a fraction of their value to debt collection services. Even though most courts hold that a creditor, or successor creditor, may not sue to collect a debt that is time-barred, it is not illegal to pursue these debts through other means. Moreover, many states hold that if a consumer makes even partial payment in satisfaction of their time-barred debts, the entire debt is revived for a new statute of limitations period and the consumer then becomes obligated to pay that entire debt again.

The Fair Debt Collection Improvement Act would clarify that lawsuits to collect on time-barred debt constitute a violation of the Fair Debt Collection Practices Act (FDCPA). The bill would also ensure that any debt collector that purchases time-barred debt on the secondary market informs the debtor that:

• the new debt collector now holds the debt, not the original creditor;
• because the debt falls outside the statute of limitations, the debt collector may not sue to collect the debt; and
• if applicable under state law, any payment towards the debt may revive the entire debt.

The measure is not intended to relieve consumers of their responsibilities of paying their debt but to provide improvements to the law that governs out of statute debt and prevent abusive tactics in the debt collection industry. The New York Times published an article on this subject in July, 2010.