Consumer Advocate Wants to End Debt Sales with Warranty Disclaimers

Going further than any previous public recommendation, a consumer attorney in a recent blog post urged the CFPB to ban creditors from selling debts that are not accompanied by “affirmative representations and warranties of completeness, accuracy, reliability and enforceability.”

Peter Holland, consumer attorney and adjunct professor at the University of Maryland Carey School of Law, said in his Sunday blog post, “Banks should not be allowed to sell their worst, most unreliable accounts as junk debt for junk prices to junk purchasers who will then file junk lawsuits.”

Holland was responding to media reports and studies that focus on the disclaimers provided in most debt sales and forward flow agreements from original creditors to debt buyers. The disclaimers typically say that the seller cannot make “any representations, warranties, promises, covenants, agreements, or guaranties of any kind or character whatsoever” to the accuracy of the records it is selling.

“We need to move from a business model where it is perfectly acceptable to sell false, incomplete and unreliable accounts, to a model where the only accounts which may legally be sold are those accounts which are true, complete and accurate,” wrote Holland.

He wants the CFPB to specifically ban account sales where the creditor cannot make binding warranties as to the completeness and accuracy of the documentation provided with the accounts.

Holland noted that his recommendation goes further than other recent suggestions for the debt sales and buying industry.

The National Consumer Law Center (NCLC) in late January called for the CFPB to ban any collection effort on time-barred accounts. That prohibition would include the sale of time-barred accounts in the primary and secondary markets.

Another recent recommendation made by Dalie Jimenez in a paper titled “Dirty Debts Sold Dirt Cheap,” called for collect efforts made on accounts bought under agreements that carry these types of disclaimers to be declared a UDAAP violation by the CFPB.

Calling both of those suggestions “good starts,” Holland wants to go further and explicitly ban the sales outright. Beyond even that, he said that “Forward Flow Agreements should be made publicly available on a website, so that consumers, consumer attorneys and judges can decide for themselves just how reliable accurate and reliable are the claims of the debt buyers.”