Restrictive Collection Bill Pending in Minnesota

In February 2024 the Minnesota Debt Fairness Act was introduced in the Minnesota Legislature. The proposed law seeks to amend the law governing debt collection, garnishment, and consumer finance.  The Minnesota Governor’s office has announced support for the Act. The proposed bill includes new terms and definitions, new prohibitions on collection activity, and creates other new rules regarding consumer debt. If passed, the law will drastically change how debt is collected in Minnesota and is sure to have long-lasting consequences for debt collectors and consumers alike. 

Terms and Definitions:

The proposed language adds some new terms while expanding existing terms’ definitions. The bill would introduce the term “collecting party,” which seems to be a catchall phrase used to replace collection agency, debt buyer, and/or collector throughout the bill. The full definition is “a person who, in the ordinary course of business, regularly engages in debt collection on behalf of the person or others.” It's possible that original creditors and hospitals may be considered a “collecting party” under this definition.

The bill would also expand the definition of a collection agency or licensee (both of which would be considered a “collecting party”) to include attorneys whose principle or sole practice is debt collection.

Prohibitions and Exemptions:

The proposed bill would add greater restrictions on collection activity and what can be collected. The standout changes include:

• A complete prohibition on credit reporting any medical debt.
• A ban on communications that use automatic telephone dialing systems, or AI/prerecord voices when a consumer has asked that they not be contacted in that way.
• A reduction of garnishable wages from 25% to 10%.
• An exemption from garnishment of up to $5,000.00 in a bank account.
• An increase of the floor for garnishment from 40 hours per week to 80 hours per week.
• A person would no longer be liable for medical services provided to their spouse.

Rules on Consumer Debt:

Arguably, the biggest changes involve the statute of limitations for consumer debt as well as judgments on consumer debt. The amendments would include:

• A reduction of a consumer debt judgment’s statute of limitation to 5 years (down from 10 years.)
• A judgment on a consumer debt cannot be renewed.
• Debts incurred after July 1, 2024, would have a 3-year statute of limitations.
• Consumers will have both a private right of action to enforce the debt collection statute as well as the ability to recover costs and attorney’s fees if they successfully defend against a collection suit.

Information about the bill can be found here and the proposed language can be found here.

insideARM Perspective:

This proposed bill raises concerns about the future feasibility of debt collection in the state of Minnesota. Not only are timelines going to be heavily accelerated by the statute of limitations changes, but the process and amount that can be collected will be greatly impacted as well. Most importantly, this bill may have long-term consequences for consumers as the legislators focus more on the symptoms of consumer debt rather than on the root causes.

The Minnesota legislature has already introduced the bill and is looking to move this through quickly. Therefore, everyone in the ARM industry should utilize any contacts they have and coordinate with advocacy groups to get the message across to the legislators that this bill is so restrictive it will ultimately hurt consumers in the long run.