Recently, the Consumer Data Industry Association (CDIA) and the Metro 2 Taskforce approved a new Special Comment Code in FAQ 69. According to CDIA’s press release , the new code, “DE = Debt Extinguished Under State Law,” applies—as the code suggests—to debts that have become extinguished under applicable law.
Under most state laws, the running of a statute of limitation period precludes only the use of certain legal mechanisms (for example, filing a lawsuit, arbitration, or garnishment action) in an effort to the collect the underlying debt. However, in the states where the running of the statute extinguishes the debt, this results in the debt being treated essentially as if it never existed and no collection of the debt in any form is permitted. (States that provide time-barred debts are extinguished upon the running of the statute of limitations currently include Mississippi, Wisconsin, and, for purchased debts only, North Carolina.)
It is critical for data furnishers to take note of this new code and ensure it is placed on time-barred accounts in these jurisdictions to avoid potential FCRA claims and other potential compliance issues. In addition, furnishers who agree to “forgive” debts in settlement agreements may want to consider whether to specifically agree that the “forgiveness” does not extinguish the debt under state law or otherwise address how any related credit reporting will be updated to avoid potential claims under state law that the settlement essentially “extinguished” the debt and therefore, not using the DE code resulted in inaccurate reporting. We do not believe this context is what the CDIA intended with FAQ 69 but that does not mean plaintiffs’ counsel will not look for opportunities to create potential claims based on existing state common law.
Furnishers settling debts should consult with counsel in order to avoid any potential arguments that the furnisher should have reported that the debt was extinguished.