NORTH CAROLINA SEEKS TO REGULATE DEBT BUYERS AND BAR THE COLLECTION OF TIME-BARRED DEBTS
The North Carolina Senate recently passed two bills regulating debt buyers and collection activities with respect to time-barred debts. Senate Bill 954 would expand the scope of the North Carolina Collection Agencies statute (CAS) (which has a permit requirement) to cover debt buyers. “Debt buyer” is defined as a person or entity that purchases delinquent or charged-off consumer loans, receivables, or other delinquent consumer debt, including debts involving bankruptcy, whether it collects the debt itself or hires a third party for collection or an attorney-at-law for litigation in order to collect such debts. Senate Bill 954 also would, among other things:
- Prohibit debt buyers from collecting a time-barred debt or a debt that is otherwise unrecoverable as a matter of law without fully informing the consumer that the debt is time-barred or is otherwise unrecoverable;
- Prohibit collection agencies, including debt buyers, from filing or threatening to file a lawsuit or initiating or threatening to initiate an arbitration proceeding that is barred by a statute of limitations or is otherwise unrecoverable as a matter of law;
- Require certain materials to be provided to a court before the court may enforce a debtor’s obligation to pay attorneys’ fees for services rendered to an assignee or a debt buyer;
- Require debt buyer plaintiffs to attach certain materials to their complaints; and
- Require debt buyers to file certain evidence establishing the amount and nature of a debt before a court may enter a default judgment or summary judgment against a debtor.
Senate Bill 974 also would amend the CAS to prohibit debt buyers or collection agencies acting on behalf of debt buyers from engaging in certain practices that are deemed to be unfair. Such practices include:
- Bringing suit or initiating an arbitration proceeding against a debtor or otherwise attempting to collect on a debt when the collection agency knows, or reasonably should know, that such collection is barred by the applicable statute of limitations;
- Bringing suit or initiating an arbitration proceeding against a debtor, or otherwise attempting to collect on the debt without (i) valid documentation that the debt buyer is the owner of the specific debt instrument or account at issue and (ii) certain reasonable verification of the amount of the debt allegedly owed by the debtor; and
- Bringing suit or initiating an arbitration proceeding against the debtor to collect on a debt without first giving the debtor a specified written notice of the intent to file a legal action at least 45 days in advance of filing.
The laws would become effective on October 1, 2009. If enacted, the North Carolina bills would continue the trend of increased regulation of debt buyers and disclosure with respect to time-barred debts. See our Alert of March 17, 2009 on similar regulation in New York City and other states. These bills also address a number of concerns that have been raised by the Federal Trade Commission and others regarding time-barred debt and the quality of information relied upon by debt collectors and debt buyers. See our Alert of March 5, 2009 on FTC recommendations with respect to reforming and updating the debt collection legal system and Alert of June 11, 2008 on filing collection actions without immediate means of proving the debt. The North Carolina bills potentially go further by re-interpreting the North Carolina statute of limitations to bar collection efforts generally and not just legal action. See our Alert of April 7, 2009 on debt collector avoiding FDCPA violation because state tolling provisions prevented debt from becoming time-barred.
- Michael Tomkies and Charles Gall
DEALING WITH MULTISTATE DEBT COLLECTION COMPLIANCE? We routinely advise on collection-related activities and the regulated activities of creditors, third party debt collectors, debt buyers and loan servicers. We also publish an easy-to-use reference that compiles state and federal laws governing debt collection practices. The Debt Collection Digest is organized topically, includes the federal Fair Debt Collection Practices Act and Commentary for easy cross-reference, and covers ADAD and monitoring and recording statutes. Contact us for details.