On Friday afternoon, the Consumer Financial Protection Bureau (CFPB) released its long-awaited Supplemental Notice of Proposed Rulemaking (SNPRM) for time-barred debts. The CFPB first hinted that an SNPRM was coming last year when it included a placeholder for time-barred debts in its full NPRM for debt collection, as well as when it launched a consumer survey for time-barred debt disclosures. As recently as December, the CFPB noted that the SNPRM would be coming "very early in 2020"—and now it is here.
The Proposed Disclosures
Following the path of certain states that already require time-barred debt disclosures, the CFPB has created three separate proposed disclosures that would be applied to applicable situations. First is the general time-barred disclosure, to be used on all time-barred debs:
The law limits how long you can be sued for a debt. Because of the age of this debt, we will not sue you for it.
Second, if the relevant state laws allow the statute of limitations to restart—discussed as "revival" in the SNPRM—then the debt collector must use the following in the disclosure:
The law limits how long you can be sued for a debt. If you do nothing or speak to us about this debt, we will not sue you to collect it. This is because the debt is too old. BUT if you make a payment, then we can sue you to collect it.
Third, if the applicable state laws allow revival through the consumer's acknowledgment of the debt, then the following disclosure applies:
The law limits how long you can be sued for a debt. If you do nothing or speak to us about this debt, we will not sue you to collect it. This is because the debt is too old. BUT if you acknowledge in writing that you owe this debt, then we can sue you to collect it.
And, if both of the above scenarios revive the statute of limitations, there is a proposed disclosure that combines them:
The law limits how long you can be sued for a debt. If you do nothing or speak to us about this debt, we will not sue you to collect it. This is because the debt is too old. BUT if you make a payment or acknowledge in writing that you owe this debt, then we can sue you to collect it.
When to Provide the Disclosures
The disclosure must be provided in the initial communication with the consumer—including oral communications—as well as in the validation letter. If the debt was not time-barred at the time the debt collector began collection efforts but later becomes time-barred, the debt collector must provide the disclosure in the first communication after the debt becomes time-barred.
The SNPRM provides a "knows or should know" standard—rather than a strict liability standard—for debt collectors. In other words, if the debt collector knows or should know that the debt is time-barred, then it must provide the disclosure. If the debt collector didn't know and shouldn't have known that the debt was time-barred, then the debt collector must provide the disclosure after it becomes aware or should have become aware that the debt is time-barred.
If the applicable state for the debt already requires a time-barred debt disclosure, the SNPRM states that the state-required disclosure can be placed on the reverse side of the page. We're already thinking what you're thinking, check out the iA Perspective below for more.
Comment Due Date
The SNPRM has not yet been published in the Federal Register. However, once it is, comments will be due 60 days after publication.
There are a few things to unpack here, we will just name a few.
Conflict with State Laws. The SNPRM notes that several states already provide a verbatim disclosure. In such situations, the CFPB's disclosure should be on the front of the letter, while the state's disclosure can be on the reverse side of the letter and still be in compliance with the rule. This causes two primary issues.
First, some states—like New York—require that their time-barred debt disclosure be placed on the front page of the letter. Per the SNPRM, this would already be deemed not in compliance. With all of the other validation notice requirements, there is simply no room on a standard letter-sized piece of paper to include all of the required information and two time-barred debt disclosures. Does this mean that, as a practical matter, the CFPB is effectively banning time-barred debt collections in New York?
Second, the SNRPM's disclosure are extremely similar—if not almost identical—to the disclosures required by the "verbatim disclosure" states. For example, states with revival statutes already require that the implications of payment or acknowledgment of the debt be included in their disclosure. What is the point of repetitive disclosures? It would seem more prudent to create an exception in the SNPRM for time-barred debts that are already subject to verbatim disclosure requirements by their applicable states, since the consumer is already on notice of the time-barred nature of the debt.
Jurisdictional Split for "Will Not Sue" and "Cannot Sue." In the SNPRM, the CFPB mentions that it considered both a "will not sue" and "cannot sue" disclosure, finding that "will not sue" is sufficient. This would, hopefully, bring a close to a jurisdictional split on the issue. A few district courts—such as the Northern District of Illinois and the District of Utah—found that "will not sue" implies that the debt collector is choosing not to sue the consumer, rather than being prohibited from doing so by law. Other jurisdictions—such as the 9th Circuit Court of Appeals and the District of Colorado—found that "will not sue" is fine.
Editor's Note: We found this jurisdictional split information—including details about each case, and the fact that many of these decisions originate from cases filed by the same set of consumer attorneys—through just a couple of clicks in the iA Case Law Tracker.
There are several more observations—the least of which being how clunky and confusing the "if you do nothing or speak to us about this debt, we will not sue you" proposed disclosure is—but we'll save those for the comment.