A Response and Critique of the NCLC Zombie Debt Article
In January 2015, an article produced by the National Consumer Law Center “Zombie Debt:
What the CFPB Should Do About Attempts to Collect Old Debt” attempts to present the general position that debts which are out of statute, or “time-barred” should be illegal to collect upon, particularly from a federal regulation standpoint.
The paper is replete with bad or incomplete information, lack of context, and poor assumptions. Its conclusions are poor and also do not – as most consumer advocates – take into account the responsibility of debtors.
The primary problem is the idea that the Consumer Financial Protection Bureau - a federal agency - can and should have legal authority to ban the collection of debts which are out of the statute. Statutes of limitation laws are made on the state level, and changing such would have drastic impacts on contract laws within every state. Any attempt to change or regulate statutes of limitations goes far beyond the CFPB mandate.
Problems with the NCLC paper lie in that it glosses over that some statutes of limitation on certain debts, particularly on open-ended credit such as credit cards (the discussion about verbal agreements is a no sequitur, as those are rarely, if ever, sold), can be as short as three years. It assumes that the statute is long enough and that any attempt to collect, no matter the statute, is wrong. Their argument, on principle, tends to hold up to a degree when dealing with debts over about 7-10 years old when it has dropped off of credit reports. However, some statutes are so short that attempts to collect should still be allowed; a three-year statute is near enough to the last activity that it is neither unreasonable nor unfair to expect someone to repay a debt so recently incurred.
The mindset that there is a problem with the law is also troublesome. Collectors who are overly aggressive on time-barred debts should not be in business. However, perceiving any collections on the time-barred debt itself as inherently wrong misses the idea that the debt was incurred and it is owed. Statutes of limitations never overturned such an idea. Consumers should NOT have a reliance that collectors only collect upon debt that is legally enforceable – not when the debt can only be just over three years old and still appear on credit reports. It is not unreasonable, nor abusive, for a collector to make an attempt to collect such a debt.
Finally, the idea that settling a time-barred debt is somehow wrong is confusing. Any debt at any stage can (and should) be settled. Settlement of a debt is good for all parties involved.
We do oppose unethical and dishonest means to collect debts. We support disclosure of consumer rights – but we believe it is also the responsibility of a consumer to generally know their rights as well. Collectors should NOT threaten to sue on time-barred debts, nor insinuate legal action. Misrepresentation of any debt is a poor business practice and damages the industry as a whole.However, collecting on time-barred debts should not be restricted by the CFPB and should not be made into another federal issue under an overreaching bureaucracy.
Conclusion: A few years ago, a report from the National Consumer Law Center (NCLC) entitled “Zombie Debt” presented the general problem of old debts that are out of statute and should be illegal to collect upon. The CFPB might have been able to do something about these attempts at collecting on debt if they had taken some action before now. If you want to learn more about what this article proposes or what type of help is available, click here for our blog post conclusion