The West Virginia Legislature recently passed H.B. 4360, which amended Section 46A-2-128 of the West Virginia Code, that defines what constitutes unfair or unconscionable debt collection activities. The amendments are effective June 6, 2014. Significantly, the amended code section requires collectors to disclose to consumers if the debt on which they are attempting to collect is time-barred and what that means for the consumer.
In making this amendment, which does not ban attempts to collect on time-barred debts, West Virginia joins a small but growing number of jurisdictions in requiring these types of disclosures. In fact, the collection industry anticipates that these very types of disclosures will soon be required on a national basis by the Consumer Financial Protection Bureau once it completes its debt collection rulemaking. We anticipate this will likely occur no sooner than early in 2015.
The specific language regarding such disclosures in the West Virginia legislation, contained in Section 46A-2-128(f), reads:
ARTICLE 2. CONSUMER CREDIT PROTECTION
§46A-2-128. Unfair or unconscionable means.
No debt collector may use unfair or unconscionable means to collect or attempt to collect any claim. Without limiting the general application of the foregoing, the following conduct is deemed to violate this section:
* * *
(f) When the debt is beyond the statute of limitations for filing a legal action for collection, failing to provide the following disclosure informing the consumer in its initial written communication with such consumer that:
(1) When collecting on a debt that is not past the date for obsolescence provided for in Section 605(a) of the Fair Credit Reporting Act, 15 U.S.C. 1681c: “The law limits how long you can be sued on a debt. Because of the age of your debt, (INSERT OWNER NAME) cannot sue you for it. If you do not pay the debt, (INSERT OWNER NAME) may report or continue to report it to the credit reporting agencies as unpaid”; and
(2) When collecting on debt that is past the date for obsolescence provided for in Section 605(a) of the Fair Credit Reporting Act, 15 U.S.C. 1681c: “The law limits how long you can be sued on a debt. Because of the age of your debt, (INSERT OWNER NAME) cannot sue you for it and (INSERT OWNER NAME) cannot report it to any credit reporting agencies.”
While it is hard to be surprised by this amendment, given the current regulatory trends and comments surrounding time-barred debt disclosures, the specific reference to the "initial written communication" with the consumer was unexpected. The amendment arguably seems to imply that these disclosures only need to be made to a consumer if the consumer’s debt is time-barred at the time the collector begins its collection attempts. The amendment says nothing about whether these disclosures are required if a debt becomes time-barred once the debt collection process is underway. In such a scenario, it would be impossible for a collector to comply if the debt was not time-barred when the collector made its “initial written communication” with the consumer about the debt.
It is difficult to believe that the West Virginia Legislature intended this sort of result as it would exclude an entire class of consumers from receiving these disclosures at the time their debts became time-barred during a collector’s active collection process. However, this oversight underscores the importance of regulators and legislators avoiding knee-jerk reactions and instead, taking sufficient time to consider and investigate the entire issue and related consequences before enacting any legislation or regulation that might have unintended adverse effects or ambiguities.
Debt collection, albeit a seemingly straightforward concept, can become very complicated in practice due to the various factual and legal situations that confront the collection industry. Regulators and legislators must provide clear, workable guidance to collectors on compliance and legal issues to enable collectors to continue to provide their services and avoid making collection efforts too costly and difficult to carry out. Any collection obstacles arising from a lack of clear guidance risk curtailing the availability of consumer credit in the long term.
To minimize any potential risk from this apparent oversight by the West Virginia Legislature, we recommend that collectors continue to scrub and monitor their active debt accounts to identify those that are about to become time-barred. Doing so will ensure that collectors are aware of that change in status as soon as it occurs. Once a debt that a collector previously was attempting to collect becomes time-barred in West Virginia, the collector should provide the disclosures required by H.B. 4360 in its next written communication with the consumer.
Further, we suggest that collectors consider proactively sending these disclosures to consumers as soon as a debt becomes time-barred to avoid any subsequent collections efforts or communications that might contradict these disclosures. Any such notice should be made before any further written or verbal consumer communication is made on these now time-barred debt accounts. While this may not be expressly required by the statute, we believe this is the spirit of the West Virginia amendment and the safest course of action regarding the collection of any time-barred debt from West Virginia consumers.
Finally, we note that the West Virginia amendment perpetuates a common misunderstanding about credit reports. Section 605(a) of the Fair Credit Reporting Act (FCRA) prohibits a consumer reporting agency from issuing a consumer report that includes information about accounts placed for collection or charged to profit and loss more than seven years earlier (these accounts are often called obsolete accounts). It does not prohibit a debt collector or any other company from reporting information about obsolete accounts because of an important exception to this restriction on reporting.
Under Section 605(b) of the FCRA, a consumer reporting agency may include information about those obsolete accounts in any report that will be used in connection with any of the following:
A credit transaction with a principal amount of $150,000 or more
The underwriting of life insurance in a face amount of $150,000 or more
The employment of any individual at an annual salary of $75,000 or more
In fact, even if the amendment were to be read as an independent restriction on such reporting, it would be preempted by Section 625(b)(1)(E) of the FCRA. Consequently, the required disclosure about so-called “reporting-barred” accounts appears to misstate the law in a way that could be problematic for at least some consumers.