O’Connor: Collection rules won’t end ‘Dawn of the Debt’

Brian J. O'Connor

If we’ve learned anything from zombie trend in pop culture — whether it’s from binge-watching “The Walking Dead” or curling up by the fire with a copy of “Pride and Prejudice and Zombies” — it’s that if you want to kill off those diseased, heartless flesh-eaters, you’ve got to go all the way.

That means something deadly, like a chainsaw. Or a flamethrower. Maybe a flame-throwing chainsaw. Or even the director’s cut of “The English Patient.”

Speaking of diseased, heartless flesh-eaters, let’s discuss the proposed new rules for debt collectors. The Consumer Finance Protection Bureau on Thursday released a draft of regulations limiting how collection agencies can pursue bad debt. That includes a cap on how many times collectors can call you: No more than six times a week, or less than once a day. I’m hoping they’ll give us Sunday off, since many of us already are in church praying, “Forgive us our debts.”

Like that bad check to Bingo Night

Unfortunately, the fine folks at the CFPB must spend so much time working their regulatin’ little fingers to the bone that they’ve never seen “I Was a Teenage Zombie,” because their approach to beating the zombies of bad-debt isn’t much better than, “Loose the poodles!”

Zombie debt is an old, unpaid bill that used to be dead and doesn’t have to be repaid or never actually existed. A debt agency buys up a bunch of old debt, goes fishing around databases to find someone who may — or may not — be the debtor, then tries to collect. Often, they’ll skip notifying the debtor and just file a civil suit, with some collectors going as far as to create bogus robo-signed affidavits for court.

This tends to overlook the finer points of the collection process, such as whether the debt already has been paid, is so old that it’s past the statute of limitations for legal action or actually belongs to someone else with a similar name. If the debtor doesn’t go to court to challenge the suit, the collector wins a default judgment that instantly makes the debt valid and collectible. After that, the threat and hassle of legal action as well as a big hit to their credit is enough to prompt most people to pay up, no questions asked.

Some say this legal chicanery borders on fraud, while I maintain it is outright fraud. Either way, it’s enough to reanimate a piece of bad debt and send that zombie shambling directly toward your wallet.

Because he’s dying to meet you

It’s not that the proposed rules from the CFPB are bad. First, they would require that debt collectors document the debt and confirm that it’s real and that you owe it. (This really shows you how bad the collection industry is in the first place, in that every year it tries to collect lots and lots of debts that simply aren’t owed.) Collectors also will have to inform debtors of their rights and won’t be allowed to sell a disputed debt to another collector who’ll come after you all over again.

The proposed rules also would require debt collectors to tell debtors that the debt is past their state statute of limitations and that they can’t be sued over the debt. But the rules wouldn’t strictly bar collectors from filing a lawsuit over that outdated debt. That’s going to remain a big problem, says Brian Parker, a consumer debt attorney in Southfield.

“They know that if they sue, 95 percent of the time it will go to a default judgment, so they don’t care,” Parker says. “There’s nothing about this that stops debt collectors from suing.”

The proposed rules will undergo reviews and hearings for about a year, so there’s plenty of time for consumer advocates to convince the CFPB to add more protections to kill off court-created zombie debt. And the CFPB has precisely the tool it needs to make it happen.

Which one? As the zombies would say, “Braaaaaains.”


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Twitter: @BrianOCTweet

Brian O’Connor is author of “The $1,000 Challenge: How One Family Slashed Its Budget Without Moving Under a Bridge or Living on Government Cheese.”