In 2020, the Consumer Financial Protection Bureau (CFPB) promulgated 12 C.F.R. § 1006.26, amending Regulation F, to implement and interpret the Fair Debt Collection Practices Act (FDCPA). It will become effective on November 30, 2021. Section 1006.26 prohibits debt collectors from bringing or threatening to bring legal action to collect a time-barred debt. Whether a debt is time-barred depends on the applicable statute of limitations under state law. To clarify this rule, the CFPB defines two terms not defined in the FDCPA: “statute of limitations” and “time-barred debt.” “Statute of limitations” means the period prescribed by applicable law for bringing a legal action against the consumer to collect a debt. “Time-barred debt” means a debt for which the applicable statute of limitations has expired.
Section 1006.26 is ambiguous despite efforts to clarify it. For example, “legal action” is not defined. The CFPB declined to provide a definition because it found that what constitutes “legal action” is case-specific. Additionally, the CFPB adopted a strict liability standard for Section 1006.26, making it more difficult to escape liability. Recognizing this challenge, the CFPB expressly acknowledged that a bona fide error may be a defense, depending upon the reason for the debt collector’s error. This would require a debt collector to show by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.
The bona fide error defense does not apply to all FDCPA violations. For example, the bona fide error defense is not available for FDCPA claims arising from a debt collector’s mistaken interpretations of the FDCPA’s legal requirements. See Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573 (2010). Because this defense has limited applicability, debt collectors should take proactive measures to avoid being sued. Such measures might include confirmation that the statute of limitations has not expired before bringing or threatening to bring a legal action. If it is uncertain that the debt is time-barred, then legal action—or the threat of it—should not be brought.
Section 1006.26 adds new hurdles for debt collectors, but they are not without recourse to collect on a time-barred debt. Time-barred debt does not mean the debt is extinguished; the debt still exists. Section 1006.26 only prohibits the collection of a time-barred debt through litigation. In other words, debt collectors may use non-litigation means, such as letters and telephone calls, to collect a time-barred debt as long as those means do not violate the FDCPA or other laws.