The CFPB has issued a proposal that would require debt collectors to make specified disclosures when collecting time-barred debts (Disclosure Proposal).  The Disclosure Proposal supplements the Bureau’s proposed debt collection rule issued in May 2019 (May Proposal).  Comments on the Disclosure Proposal must be filed no later than 60 days after the date it is published in the Federal Register.  The Bureau has proposed that the Disclosure Proposal would have an effective date that is one year after a final rule is published in the Federal Register.

The May Proposal, in Section 1006.26(b), provides that “[a] debt collector must not bring or threaten to bring a legal action against a consumer to collect a debt that the debt collector knows or should know is a time-barred debt.”  The Disclosure Proposal adds Section 1006.26(c) containing a disclosure requirement for a debt collector “who knows or should know that a debt is time barred when the debt collector makes the initial communication [as defined in the May Proposal.]”  It requires such a collector “to clearly and conspicuously” make the following disclosures in the initial communication and validation notice:

  • “That the law limits how long the consumer can be sued for a debt and that, because of the age of the debt, the debt collector will not sue the consumer to collect it.”
  • “If, under applicable law, the debt collector’s right to bring a legal action against the consumer can be revived, the fact that revival can occur and the circumstances in which it can occur.”

The Disclosure Proposal also includes modified timing requirements for making these disclosure when (1) a debt becomes time-barred (i) after making the initial communication but before the validation notice has been sent, or (ii) after both making the initial communication and sending the validation notice, and (2) a debt collector who neither knows or should know that a debt is time-barred (i) when making the initial communication but knows or should know the debt is time-barred when sending the validation notice, or (ii) when making the initial communication or sending the validation notice but later knows or should know the debt is time-barred.

The Disclosure Proposal contains four model forms and requires that when the disclosures required by Section 1006.26(c) are on a validation notice, “the content, format, and placement of the disclosures… must be substantially similar to such disclosures on [the model forms].”  When the Section 1006.26(c) disclosures are “provided orally or in a written communication that is not a validation notice, the content of the [Section 1006.26(c)] disclosures must be substantially similar to such disclosures on [the model forms].”  The Disclosure Proposal includes a compliance safe harbor for debt collectors who use the model forms or their relevant content, as applicable.

Other noteworthy aspects of the Disclosure Proposal include the following:

  • A proposed comment would provide that to satisfy Section 1006.26(c) regarding debts that can be revived, a debt collector must determine which state’s law applies and the circumstances, if any, under which that law would permit revival.  The Bureau asks for comments “on the burden of requiring all debt collectors to determine, when collecting debt they know or should know is time barred, which State’s law applies and the circumstances, if any, under which that law would permit revival.”
  • A proposed comment would provide that when making Section 1006.26(c) disclosures on a validation notice that is substantially similar to a model form, a debt collector can make disclosures required by state or other applicable law on the reverse of the validation notice.

We will be sharing more of our reactions to the Disclosure Proposal in subsequent blog posts.  However, one immediate concern raised by the Disclosure Proposal is its potential impact even before it is finalized and becomes effective.  As the Bureau notes in the Disclosure Proposal’s background discussion, some courts have found that a debt collector who seeks payment on a time-barred debt and provides disclosures regarding the debt’s unenforceability has nevertheless violated the FDCPA because the disclosures were deemed misleading.  The Disclosure Proposal provides support for the argument that until it is finalized, there is no FDCPA requirement to provide a disclosure regarding time-barred debts despite decisions that have held to the contrary.  At the same time, however, there is also the possibility that before the Disclosure Proposal is finalized, the Bureau’s proposed model forms (together with its rationale for the proposal) will be used by plaintiff’s attorneys to support FDCPA and/or state UDAP or debt collection law attacks on disclosures for time-barred debts that differ substantially from those proposed by the Bureau.  Also, while the Bureau has stated that the Disclosure Proposal, like the May Proposal, is only intended to apply to debt collectors who are subject to the FDCPA, the model forms could create a similar risk for first party collections.