The new law explicitly prohibits debt buyers (companies that buy debts from other companies and then pursue collection efforts against debtors) from filing lawsuits to collect on debts that are older than four years old. For credit cards, the four year time period is calculated from the “last date of activity”. Your last date of activity is the last date that some type of activity, such as a payment towards the account, was reported on the account.
Up until now, debt collectors were not expressly prohibited from filing a lawsuit for old debt, and as such, it was not uncommon for them to do so. Knowing that debtors would not show up to court or would not know that there was only a four year window to collect the debt, debt collectors would get judgments against debtors for monies that they were never entitled to collect.
Under the new law, debt buyers will have to have the following information before they can begin debt collecting, and they must provide this information if they making a written statement to collect:
- Proof that they are the sole owner of the debt
- An accurate account of the balance of a debt at charge-off and a listing of any post-charge-off interest and fees.
- Date account became default or the date of the last payment.
- Information on the original lender and any previous purchasers of the account
Though this law will help consumers, there are three consequences I believe consumers need to be aware of:
1) You might not see a change in the actions and behavior of debt buyers for some time because the new law mainly applies to debts purchased after January 1, 2014 and so the requirements listed above do not apply to any debts purchased before the end of the year . What this means is that there are tons of accounts that fall outside these new requirements and so debt buyers don’t have to comply with these new requirements.
2) Also, because debt buyers don’t want to comply with the new requirements until they have to, I believe there’s going to be a lot of accounts being bought and sold before the end of the year. This means you might be seeing a lot of activity on your accounts popping up as debt gets sold.
3) Finally, I believe there will be a steady spike in collection lawsuits as collection companies now rush to file lawsuits before the four year window to collect on credit card debt expires. Debt buyers know they will now have to comply with the requirements listed above and so you bet that they will now become better at collecting by filing lawsuits when they need to.
I’ll end by saying that this new law does not impact in any way the current federal bankruptcy laws. Thus, the fact remains that once a debtor files bankruptcy, the debt buyers and any other creditors MUST cease all collection efforts and cannot ever collect on a discharged debt. Bankruptcy offers the greatest protection against creditors, so if there’s a need, do investigate with a bankruptcy attorney whether bankruptcy is right for you. If you are in the San Francisco Bay Area, I would be more than happy to help you.