Watch what you're doing with time-barred debts

Of course, people are responsible for their debts.  However, at a certain point, how much time has passed becomes an affirmative defense under state law and creditors can’t prevail in court.  But what happens if a payment is made on a time-barred debt?  A consumer can really get clocked — because in many states the debt can be revived if a person makes a payment or says in writing that they intend to.  The FTC has announced a $2.5 million settlement with Asset Acceptance, LLC, for allegedly breaking the law in how it tried to collect time-barred debts.

Michigan-based Asset Acceptance buys unpaid debts from credit card companies, health clubs, companies that provide telecom or utility service, and other debt buyers.  Getting the debts for pennies on the dollar, the company targets accounts other collectors have pursued unsuccessfully and are more than a year past due.  The problem, of course, is that if a debt collector tells somebody they owe money and demands payment, it may create the misleading impression that the company can collect in court.  That’s not the case with time-barred debts.

A law enforcement action filed by the Department of Justice on the FTC’s behalf charges that Asset Acceptance pursued debts — including time-barred debts — in ways that violated the law.  Among other things, the complaint alleges that the company:

• claimed that consumers owed money when Asset Acceptance didn’t have proof to back it up;
• failed to disclose that debts were too old to be legally enforceable or that a partial payment would restart the clock;
• failed to give consumers verification of a debt when they asked for it;
• provided information to credit reporting agencies it knew — or had reasonable cause to know — was inaccurate;
• didn’t notify consumers in writing that it passed negative information on to credit reporting agencies;
• didn’t conduct reasonable investigations when it got a notice of dispute from a credit reporting agency;
• illegally told third parties about people’s debts; and
• used illegal debt collection practices.

In addition to the $2.5 million civil penalty, the settlement puts provisions in place to protect consumers going forward.  For example, when dealing with debt it knows or should know is time-barred, Asset Acceptance must disclose to the consumer that it won’t sue on the debt and — assuming it’s the case — it has to tell people that it may report nonpayment to the credit bureaus.  Once it has made that disclosure, Asset Acceptance can’t sue, even if the consumer makes a partial payment that otherwise would restart the limitations clock.

The order also prohibits Asset Acceptance from making material misrepresentations about debts;  from “parking” debt on a consumer’s credit report when it has failed to notify them in writing;  and from violating the FTC Act, the Fair Credit Reporting Act, and the Fair Debt Collection Practices Act in the ways alleged in the complaint.