The new rule defines attempts to collect a time-barred debt a false or deceptive practice, forbidden to debt collectors.
The new prohibition becomes effective November 30, 2021 when amendments to the rules associated with the federal Fair Debt Collection Practices Act become law.
New rule applies to debt collectors
Importantly, the FDCPA applies only to “debt collectors” which the law defines as
any person who regularly collects, or attempts to collect, consumer debts for another person or institution or uses some name other than its own when collecting its own consumer debts.
The original creditor, then, is not covered by the FDCPA. ( Except in California, where our Rosenthal Act applies the FDCPA to both debt collectors and the original creditor.)
Injured consumers collect damages
Violation of the new rule will set victimized consumers up to collect from the debt collector!
The FDCPA allows recovery of damages for
- physical and emotional distress,
- financial loss,
- statutory damages, and
- attorneys fees for enforcing rights under the law.
When is old debt time-barred
The new rule gives us a definition for “time-barred debt” as
a debt for which the applicable statute of limitations has expired.
A statute of limitations governs prescribes how long a creditor may use the courts to collect its debt. Each state has its own statute of limitations for different kinds of legal actions. See the state by state list of statutes of limitation mid way through this article.
In some states like California, the creditor may not even file an action on a time -barred debt; in other states, the person being sued has to answer the complaint and assert the statute of limitations to defeat a time barred claim.
In the real world of consumer debt, too many consumers don’t appear in court to defend themselves from time barred debt and the creditor wins.
When does statute of limitation begin counting
Often, the trickiest thing about determining when the statute of limitations has expired is figuring out when it starts counting.
You count the years, beginning with the last activity on the account. That activity could be the last payment, or the last purchase. It has nothing to do with when you opened the account.
So note carefully that a payment on a long overdue account may restart the statute of limitations. In California, that would give the creditor a new four years to bring an action to collect the debt.
Why this rule matters
The simple fact that threatening to sue, or actually suing, on a time-barred debt violates federal law should greatly reduce the use of these kinds of threats. But that reduction needs to be coupled with awareness on the part of those who owe money they can’t pay. The right to be free of a lawsuit on old debt only helps if you know your rights.