Rhode Island ‘Expired Debt Act’ More Than Name Implies

This post originally appeared on the Consumer Financial Services Blog, and is republished here with permission.

Eric Rosenkoetter

On Jan. 7, the Expired Debt Act (EDA) was introduced in the Rhode Island House of Representatives and referred to the House Committee on Judiciary.  The bill was introduced by State Representatives Shekarchi, Solomon, Regunberg, McEntee, and Craven.

Since 2007, Rhode Island has had its own Fair Debt Collection Practices Act (RIFDCPA) that is, for the most part, identical to its federal counterpart.  The EDA, however, introduces new definitions and restrictions related to debt collection.

The EDA defines a “collector” as “a person collecting or attempting to collect an alleged debt arising out of a consumer transaction.”  The definition is not restricted by any exclusions other than the definition of a “consumer transaction,” which is “any transaction involving a person seeking or acquiring real or personal property, services, money, or credit for personal, family, or household purposes.”  The EDA does not define “debt” and does not explicitly adopt any definitions from the RIFDCPA.

Thus, compared to the RIFDCPA, the EDA applies to:

• Creditors, and creditors’ employees, collecting their own debts;
• Attorneys at law;
• Federal and state employees collecting debt in their official capacity;
• Persons serving legal process in connection with the judicial enforcement of a debt;
• Nonprofit organizations that perform consumer credit counseling and assist consumers in the liquidation of debts by receiving payments from the consumer and distributing the amounts to creditors;
• Persons collecting or attempting to collect a debt owed or due or asserted to be owed or due another to the extent the activity:
  • is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement, or;
  • concerns a debt that was originated by the person;
  • concerns a debt that was not in default at the time it was obtained by the person or in connection with a debt secured by a mortgage, when first serviced by the person;
  • concerns a debt obtained by the person as a secured party in a commercial credit transaction involving the creditor.

As the name implies, the legislation provides that if a debt is beyond the statute of limitations, a “collector” must advise the debtor in every communication that: 1) the statute of limitations has expired; 2) the debtor may assert the expiration as a defense in a collection action; and 3) entering into a payment agreement or making a payment may revive the debt and prevent assertion of the statute of limitations defense.

The EDA contains “prohibited practices” that are similar, but not identical, to various requirements and restrictions in the RIFDCPA.  Because of the differences and the fact that some persons would be subject to both acts, the EDA creates an exceptional opportunity for conflict, confusion and resulting litigation.

Notably, the EDA prohibits a collector from initiating any contact with a debtor unless the collector possesses “verifiable” documentation of ownership of the debt, including a copy of the signed contract of the original debt, the final account statement of the debt, and written documentation that the collector has the right to collect on the debt.

Yesterday, the bill was considered before the Rhode Island House Judiciary Committee. Testimony was taken including that from DBA International, the trade organization of debt buying companies. Industry stakeholders ACA International, Encore Capital Group, PRA Group and DBA International also submitted written testimony outlining their concerns with the bill.

“DBA International acknowledges the importance of the issue and appreciates the spirit behind the Expired Debt Act (HB 7028),” said Jan Stieger, executive director of DBA International. “However, this bill needs revisions to lessen unnecessary harm to the industry without lessening what will be a powerful consumer protection bill when amended. We have communicated our willingness to work with the sponsor.”