NCLC's Influence on State Law Policy: 3 Things You Should Know

When it comes to debt collection, state legislatures have been busy lately. ARM industry professionals have noticed it, the CFPB has encouraged it (see here, here, and here), and it may feel as if the industry is under pressure from all sides with some of the recent legislation and regulations. You might be wondering where some of these ideas are coming from and why it feels like there’s an uptick. One possible explanation, is the actions, rhetoric, and push for this type of legislation from the National Consumer Law Center (NCLC). Recently, NCLC provided a debt collection State Policy Resource that offers model legislation along with data, research, and consumer friendly studies. Here are the top three things you need to know about it:

1. Model Legislation Proposals

One of the NCLC’s aims is to impose stricter regulations on consumer debt collection practices. To that end, the State Policy Resource provides model legislation to affect different areas of debt collection: contracts and exemptions, wage garnishment, statutes of limitations, and medical debt. 

While each template has its own concerning provisions, the Model Statute of Limitations Reform Act might be the most troubling and we have already seen states attempting to implement some of the more drastic aspects. The model legislation would reduce the SOL to 3 years (with a shortest state provision) and reduce the validity of a judgment to 5 years with no opportunity to renew.

Recently, Minnesota’s Debt Fairness Act seemed to include the NCLC’s model language. It included the 3-year SOL, the 5-year judgment SOL, and the non-renewable judgments provision. Through the hard work of ARM industry professionals, those provisions have since been removed, but we will likely see more of this.

2. NCLC’s Negative Rhetoric

The NCLC is nothing if not exhaustive in what information it provides to consumers, law makers, and attorneys. However, the phrasing used in these documents sets the tone that debt collectors are to blame for debt problems. Some of the titles include:

• No Fresh Start 2023: Will States Let Debt Collectors Push Families Into Poverty as Economic Uncertainty Looms?
• Don’t Add Further Insult to Injury: Medical Debt & Credit Reports

The wording in both suggests that it is debt collectors pushing families into poverty (rather than low wages, inflation, etc.) and that collecting medical debt using one of the few tools available (credit reporting) is insulting. This rhetoric paints the debt collection industry as the bad guys and states are following suit with legislation that looks to make it more difficult for collectors without addressing the root causes of debt.

3. Data and Studies

The State Policy Resource has a long list of state policy indexes and reports, many of which provide state law comparisons for everything from exemptions to medical debt. To be clear, educating consumers and lawmakers about debt is never a bad thing, but much of what is shared is problematic for creditors and collectors.

For example, some of the sections seemed to be encouraging consumers to file consumer complaints and challenge the licensing of collectors. It should come as no surprise that collectors are seeing a high complaint volume, which bogs down an already complicated process.

The resource also shares some misleading studies. A recent issue brief shared in the document picks apart any research that shows a correlation between increased debt collection restrictions and any negative impacts to consumers for a variety of selective reasons. The NCLC then shares a study and claims that “wage seizure protections actually raised the amount of credit available and increased net benefits to consumers and credit providers” when the study states the direct opposite.

You can find the entire document here.

insideARM Perspective

The State Policy Resource poses significant challenges as it raises concerns around the model legislation influencing state lawmakers, the rhetoric employed within the resource demonizing debt collectors, and the document being marred by biases and inaccuracies all of which threaten to further complicate the landscape for creditors and collectors. In navigating this environment, ARM professionals must remain vigilant in the states they practice in and actively engage with policymakers to ensure balanced and fair regulations that uphold both consumer rights and industry viability. Otherwise, this document will be indicative of the direction debt collection legislation is heading.

Additionally, those in the ARM industry should consider ways to dispel the myth that debt collectors are harmful. Debt collectors are part of the financial ecosystem for a reason. For a variety of reasons, those in the ARM industry often stay silent when they see mistruths. However, the less we participate in the conversation, the more we allow inaccuracies, like those found in NCLC's State Policy Resource, to flourish.