The Consumer Financial Protection Bureau (CFPB) recently issued an advisory opinion clarifying the rules for lawsuits filed by debt collectors on time-barred debts. The opinion became effective on May 1, 2023.
The advisory opinion emphasizes that debt collectors who use or threaten to use state foreclosure proceedings to collect time-barred mortgage debts may violate the FDCPA and Regulation F’s restrictions against time-barred debt. State foreclosure proceedings are considered a form of debt collection under the FDPCA, which means that individuals or entities initiating foreclosure actions are classified as debt collectors, including attorneys or representatives acting on behalf of other entities.
Time-barred debts refer to debts where the statute of limitations for bringing a lawsuit has expired. When a debt is time-barred, meaning it is no longer legally enforceable due to the passage of time, a debt collector are prohibited from taking or making threats to take legal action on that debt. This prohibition applies regardless of whether the debt collector is aware or should be aware that the debt is time-barred.
The CFPB also clarifies that other non-foreclosure debt collection activities fall under the purview of the FDCPA, including communicating with consumers about defaulted mortgages. Debt collectors involved in these activities must comply with all other requirements and prohibitions of the FDCPA, regardless of whether the debt is time-barred. This includes:
- Not providing false information about the nature, amount, or legal status of the debt
- Not making threats that are illegal or not intended to be taken, and
- Not selling or transferring a debt that has been paid, settled, or discharged in bankruptcy.
Debt collectors must also identify themselves as such in all communications with consumers, provide validation information when required, and adequately respond to consumer disputes before continuing to collect the debt.
The advisory opinion further notes that even if a debt collector is solely involved in actions required for a nonjudicial foreclosure, they are still subject to the FDCPA’s prohibition against taking or threatening nonjudicial actions that result in property repossession or disabling if the debt collector does not possess a present right or intention to do so.
Earlier this year, the CFPB took action against Portfolio Recovery Associates for a number of violations including collecting on and suing for debts that were outside the statute of limitations.