Massachusetts Proposes New Debt Collection Legislation; Creditors Should Take Note

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Massachusetts Attorney General Maura Healey’s Office offered support this week for proposed legislation that would provide greater protections and relief for consumers in her state who are pursued by abusive debt collectors. Her office testified before the Joint Committee on Financial Services today in favor of the Family Financial Protection Act (FFPA), filed by Senator James Eldridge and Representative Paul Brodeur. The bill addresses a number of problematic practices in the debt collection industry that have resulted in consumers being sued on the basis of inaccurate information for debts they do not owe.

“The Act provides desperately needed relief to the poorest and most vulnerable Massachusetts citizens,” said Consumer Protection Division Chief Max Weinstein who offered today’s testimony pdf format of Testimony on Family Financial Protection Act
 before the committee.

When a borrower has not made a payment in months, or years, the original creditor declares the account a loss. Debt buyers purchase old debts for pennies on the dollar, and pursue payments of the entire amount supposedly due on the account.

“Debt buyers pursue consumers for debts they do not owe, or seek to collect more than a consumer actually owes. Debt buyers pursue consumers for debts that are beyond our statute of limitations. Perhaps most troubling of all, debt buyers target the most vulnerable of our fellow citizens, the elderly, the disabled, and the desperately poor,” according to the testimony.

The AG’s Office regularly receives complaints from Massachusetts residents about the debt collection industry, and since 2006, has averaged approximately 1,300 complaints annually. A recent analysis by the Urban Institute demonstrated that 23 percent of Massachusetts residents – more than one and a half million people – have a debt in the collection process on their credit report.

In just the past few years, collectors have sued hundreds of thousands of Massachusetts consumers, many of whom work minimum wage jobs, live on a fixed-income, are disabled, or are elderly. Some of them cannot appear in court to dispute the debt, and many cannot afford legal representation.

Existing law provides a six-year statute of limitations on debts, allows consumer payments to “revive” the limitations period (leading collectors to pursue debts that are sometimes more than 10 years old), calls for the charging of 12 percent interest post-judgment, and enables judgments to be enforced for up to 20 years.

The FFPA’s key protections would address these problems:

  • Statute of limitations: The statute of limitations would be decreased to three years on consumer debt actions.
  • Protecting consumer income: The amount of net earnings protected from wage garnishment would be increased to $720 per week. Presently, state law exempts wages of only $450 a week from garnishment by debt collectors.
  • Expiration of right to collect: The right to collect on a debt after the statute of limitations has expired would be extinguished.
  • Period for collection on judgment: A collector would only have five years to execute and collect upon a judgment.
  • Post-Judgment Interest Rate: Instead of allowing current 12 percent post-judgment statutory interest rate for consumer debt collection cases, the FFPA would be fixed to reflect current interest rates, which are now at historic lows. Massachusetts currently has one of the highest post-judgment rates in the country.
  • Arrest warrants: The Act would prohibit debt collectors from seeking civil arrest warrants.

insideARM Perspective

The quote from the AG office’s testimony, “Debt buyers pursue consumers for debts they do not owe, or seek to collect more than a consumer actually owes…” is quite a broad generalization, offering no facts to support the statement. While it is true that there these things happen, using anecdotal examples to support legislation that has a broad effect is likely to produce unintended consequences.

This proposed Massachusetts legislation cuts the statute of limitations in half, and makes it illegal to even collect (not sue, but collect) on a debt after that time has passed. It also reduces the period to collect on judgments by 75%. This would have a significant impact on creditors and their actions to collect.

This past summer, Illinois passed new debt collection rules that, evidently, nobody in the industry saw coming. Illinois Public Act No. 227 was quietly signed into law on August 3, 2015. It containing several substantive updates to the Illinois Collection Agency Act (ICAA), and especially affected creditors.

Finally, as reported today by ACA International, leaders from its New York Unit met earlier this week with New York regulators and learned that they too are considering legislation to reduce the statute of limitations in their state.

New York is an example of a state where the ARM industry has been actively engaged. To highlight a few examples in addition to ACA’s efforts, DBA International hosted a symposium with New York regulators earlier this year, and the Consumer Relations Consortium has met multiple times with the Department and also submitted proposed FAQs, some of which have been adopted.

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Posted in Accounts Receivable Management, Charge-off, Collection Laws and Regulations, Credit Grantors, Debt Collection, Debt Statute of Limitations, Featured Post, Massachusetts .

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  • avatar Ken Wilson says:

    Just a few comments on the proposed legislation. The MA AG provided 2 numbers in it’s testimony: 23% of MA population is subject to some form of collection activity (MA has a population of 6.75 MM) and the AG’s Office has received on average 1,300 complaints regarding debt collection per year for the last few years. Doing the math, that would appear to be approximately 0.02% – pretty good for any industry. I’d view this as an indication that the current regulatory scheme is working not that it is a mess as described.

    Regarding the Statute of Limitations – reducing the SOL to 3 years coupled with extinguishing the debt once it expires means creditors will no longer be able to work out extended repayment plans with consumers. To put it another way, if a consumer can’t pay a $5,000 debt in full at $100 per month within the 3 years of the proposed limitations period a creditor is faced with 2 choices: Accept the reduced amount from someone willing to pay the debt in full (but needs more time than 3 years) or file suit before the 3 years runs, even against a consumer who’s willing to resolve the account balance voluntarily. Does that approach make sense? It sounds more like a “full employment for lawyers” approach since any rational creditor would take steps to protect the recovery stream from those consumers willing and capable of paying a debt in full but in need of more time.

    Finally, consider what happens to a consumer who’s past due account will remain on a credit bureau report for 7 years following default but has no ability to resolve the account – and improve his credit – once the debt is extinguished by operation of the proposed 3 years SOL. A creditor could no longer accept payment on the extinguished debt without committing an “unfair and deceptive act or practice” and the consumer is left with bad credit that he can’t repair. Would this not negatively impact a consumer’s ability to get a job (now that employers frequently use CBRs as part of the screening process), housing, new credit, a security clearance, etc.?

    The unintended consequences of the proposed legislation outweigh the benefit to be derived from the proposed statutory changes. That’s not to say there isn’t room to improve existing law – only that this bill is not well thought out.

  • avatar todd bean says:

    Do you actually believe what you write?

    “To put it another way, if a consumer can’t pay a $5,000 debt in full at $100 per month within the 3 years of the proposed limitations period a creditor is faced with 2 choices: Accept the reduced amount from someone willing to pay the debt in full (but needs more time than 3 years) or file suit before the 3 years runs, even against a consumer who’s willing to resolve the account balance voluntarily.”

    To put it another way, you’re full of crap. You know good and well that each payment revives the statute of limitations and the 3 year period runs from the date of last payment.

    When meeting with regulators do you guys actually advance these type of arguments? If so, that is probably why your position falls on deaf ears.

    Nobody is going to take you serious if this type of argument is the best you can come up with.

  • avatar Ken Wilson says:

    Mr. Bean,
    Before throwing insults at those posting comments it might have been helpful if you had taken the time read the bill. That way there might be some basis for your statements.

    Section 4 of the bill entitled “Limitations on Actions for Consumer Debts at subsection (c) reads as follows:

    (c) If a consumer debt has been charged-off or placed for collection, or there has not been
    any payment on the debt for over 180 days, any subsequent payment toward the debt or oral or written affirmation of the debt shall not extend the three-year limitations period, nor shall it bar the consumer from asserting any defenses to the collection of a consumer debt. If a payment on a defaulted or charged-off debt completely cures the default and pays off any delinquency, then a new cause of action may accrue upon a subsequent default or charge-off.

    I stand by my example. Next time, perhaps, you’ll take the time to learn a little bit about that on which you offer an opinion before simply assuming that your know what something like a proposed piece of legislation says before you even read it.

  • avatar todd bean says:

    Nice try, but I did read the law and as you correctly stated it says…..

    “or there has not been any payment on the debt for over 180 days.”

    How in the world is an original creditor harmed by this law if a person can pay 100.00 a month?

    You’re probably just mad because you deal with junk debt and this law will put a stop to those collections. But you’re trying to paint a picture like this will tie an original creditors hands where they won’t be able to make deals, and it clearly does not.

    But nice try trying to paint yourself as the victim.

  • avatar todd bean says:

    And any savvy consumer would sue you for putting an extinguished debt on their credit report, as credit reporting is debt collection activity (at least in the 8th circuit) and you would be attempting to collect a debt that no longer exists.

    So your credit report example is bull also.

  • avatar Ken Wilson says:

    The original creditor is harmed exactly as I indicated they would be harmed. It’s unfortunate that you appear to be unable or unwilling to read or understand plain English.

    The paragraph quoted from the proposed statute uses the conjunction “or” not “and”. It makes a world of difference. Additionally, had you reviewed the Attorney General’s prepared comments – which are embedded as a PDF in the article above – you would see at paragraph 8 that my interpretation of the impact of the proposed legislation is exactly correct. The AG said as much.

  • avatar bill-jones says:

    Ken – did you read the PDF? How is the original creditor involved?

    Quote from the second paragraph:

    “By definition, a debt in collection is old – the borrower has not made a payment in months, if not years, and the original creditor has charged off the account as a loss. When consumers are pursued for such old debts, they now typically face a new breed of publicly-traded, national corporations, whose only business is to buy deeply distressed debts for pennies on the dollar. These debt buyers then seek to collect the entire amount supposedly due on the account from ordinary consumers.”

    The testimony places the definition as debts that are charge off and bought by the scum that rank below hell debt buyers like Encore, LVNV, PRA, etc… You know, the ones who are the targets of multiple federal and state actions? Obviously, this is about the buyers, not the collection agencies working on behalf of the OC’s before charge-off.

    This type of legislation is needed when being applied to the scumbag JDB’s.

  • avatar Ken Wilson says:

    The proposed revisions to the Statute of Limitations would apply regardless of who owns the debt or who seeks to collect the debt – the original creditor (if they still own it) or a subsequent purchase of the debt. It’s not limited just to debt that is sold to debt purchasers. Further, the AG appears to define “old debt” as any debt that is charged-off. In my experience a fresh charge-off has not been considered “old debt” in the same way debts close to or beyond the SOL have been.

    I’m not in anyway saying that a rational discussion can’t be had regarding revising the SOL or that creditors and debt buyers are “victims” as a prior comment seemed to imply. My point all along has been that sometime proposals for legislative change are made that show the proponent has not thought through the natural consequences of their proposal once it is introduced into the real world. Once enacted it might be very difficult to correct.

    As pointed out in my prior examples sometimes people experience hard times that are only temporary. They simply need some space, cooperation, and a little respite. Perhaps a job is lost and it takes a year to find something close to the prior position. Bills go unpaid and under the OCC’s rules, accounts must be charge-off. That doesn’t mean the debt is forgiven. It does mean the SOL is running. If the consumer owing the debt and the owner of the debt can work something out voluntarily but it’s going to take longer than 3 years to complete does it make sense to have laws that say to the creditor if you do that the payment stream ends at 3 years OR you can sue your cooperating customer to allow the otherwise voluntary arrangement to be completed? You might come down on one side of that and I might come down on the other. I just think its better that all the ramifications of a decision be out there for consideration in advance rather than have people be surprised by consequences that were not foreseen.

  • I am from Massachusetts…this wont pass and the governor wont sign it if it does.
    I am a DEMOCRAT…and I’m pro business…

    there are many…many business minded Democrats in the Massachusetts Senate.

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