Is a Uniform Debt Buying Code on Its Way?

Ballard Spahr LLP

The Uniform Law Commission (ULC), a non-partisan organization committed to drafting uniform state laws, has authorized the formation of a committee to study the need for and feasibility of state legislation to address the debt buying industry. The ULC Transfer and Recording of Consumer Debt Study Committee will also investigate the viability of a registration system to record transfers of consumer debt from originating creditors to debt buying entities. The creation of a so-called national debt registry could also be split up into multiple registries among the states, so that the title to a consumer debt can be tracked as the debt is sold from one entity to another.

In a press release announcing the formation of the study committee, the ULC observed that the Office of the Comptroller of the Currency (OCC) recently issued best practices for the sale of consumer debt while also expressing concerns about the safety, soundness, and consumer protection issues involved with such sales. The study committee will review existing debt buying laws and make a recommendation on whether the ULC should proceed with drafting a uniform law in this area. Based on the ULC criteria to make such a recommendation, the 17-member study committee must conclude that a uniform debt buying code will produce significant benefits to the public through uniformity of state laws. Although the study committee members have disparate practices from all across the country, some have prior experience with financial services, specifically the debt industry, and at least four have previously served on the ULC committee that drafted the Uniform Debt Management Services Act. To further their investigation, the ULC study committee may choose to meet with industry stakeholders to gauge the need for uniform state legislation on debt buying, the likely scope of any drafting project, and the potential support for such a project.

The ULC, also known as the National Conference of Commissioners on Uniform State Laws, was established in 1892.  The ULC is a state-supported organization comprising volunteer lawyers who are appointed from all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. The ULC researches, drafts, and promotes the enactment of uniform state laws in areas where having differing legal regimes among the states undermines the interests of citizens throughout the United States. Among the ULC’s achievements are the development of the Uniform Commercial Code, Uniform Trade Secrets Act, and Uniform Electronic Transactions Act.

The formation of the study committee is only the first step in a lengthy process that may or may not lead to a uniform debt buying code. Any draft legislation ultimately produced by the ULC will be years in the making. The recommendation of the study committee will be vetted by the ULC’s Scope and Program Committee before proceeding to the ULC’s Executive Committee. If the Executive Committee approves the recommendation, a ULC drafting committee will be formed to prepare preliminary drafts that will be subject to extensive committee consideration. Drafts that proceed out of committee will then be subject to debate by the entire ULC at a minimum of two annual meetings. Even after the ULC has approved a final draft debt buying code, the ULC must advocate for passage of the draft legislation by the various states as no uniform code is effective until a state legislature enacts it into law.

Meanwhile, debt buyers must continue to navigate carefully through a highly complex and rapidly changing legal environment, which already includes the federal Fair Debt Collection Practices Act, the various state laws such as the California Fair Debt Buying Practices Act, and the impending CFPB debt collection rules.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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