The legislation, in part, defines active and passive debt buyers as “debt collectors.” It also places limits on garnishable wages, establishes a three-year statute of limitations, prohibits revival upon payment, and places limits on a successful plaintiff’s award of interest and attorney’s fees.
The legislation contains the following:
- “Debt Buyer” means a person or entity that purchases delinquent or charged-off consumer loans or consumer credit accounts, or other delinquent consumer debt for collection purposes, whether it collects the debt itself or hires a third party for collection or an attorney for litigation in order to collect the debt. A debt buyer is considered to be a debt collector.
- If a defendant’s earnings are attached to satisfy a judgment for collection of a debt, the debtor’s garnishable earnings for any week that are less than 80 times the greater of the federal or state minimum hourly wage … are exempt from attachment and not subject to garnishment. If the debtor’s garnishable earnings exceed this amount , no more than 10 percent of the amount exempt from attachment is subject to garnishment unless the weekly garnishable earnings of the debtor exceed $1,200, in which case no more than 15 percent is subject to garnishment.
- Any action to collect a consumer debt must begin within three years of the accrual of the claim, which shall be the earlier of the date of charge-off, placement for collection, or 180 days after the last regular payment, regardless of whether “the claim sounds in contract, contract under seal, account stated, open account or other cause…”
- If a consumer debt has been charged-off or placed for collection, or there has not been payment for more than 180 days, any subsequent payment toward the debt or oral or written affirmation of the debt will not extend the three-year limitations period, nor bar the consumer from asserting any defenses to the collection of the debt.
- After the three-year statute of limitations has expired, the debt is extinguished.
- If the plaintiff prevails, interest is limited to the rate of interest equal to the weekly average one-year constant maturity Treasury yield.
- A prevailing plaintiff may be awarded attorney’s fees as evidenced by the contract, not to exceed 15 percent of the amount of the debt excluding attorney’s fees and costs.
- A prevailing debtor is entitled to attorney’s fees.
Harms Consumers and Creditors
By reducing the limitations period to three years, excluding post-default payments from restarting the limitations period (unless the payment “completely” cures the default) and then extinguishing the debt when the limitations period lapses, the bill would hand-tie both creditors and consumers from entering into longer term loan modifications. Any modification that has a term that runs more than three years beyond default means the debt will be extinguished at the end of the third year following default, regardless of the agreement’s terms, the payments made or that a sizeable balance still remains. In order to avoid this result, any post-default, pre-suit agreement must pay the debt within three years of default. There are ways to counter this, but they will involve filing a lawsuit.
There are other provisions of the bill that also mandate harsh terms for consumers. Judgments must be enforced within five years of being entered or they too are extinguished. If the consumer and creditor have a post-judgment agreement providing for reasonable repayment terms over 10 years, for example, the creditor must still garnish or execute on the consumer to avoid the judgment being voided on its fifth anniversary. There is no provision allowing renewal of the judgment.
Effort Made to Squash Industry Opposition
Proponents of the legislation, such as the National Consumer Law Center, the Center for Responsible Lending and Greater Boston Legal Services were provided more than an hour to submit testimony. DBA International along with Encore Capital and the Massachusetts Mortgage Bankers Association attended the hearing and registered to submit testimony. But following the close of testimony from the consumer advocates, which lasted nearly an hour, the hearing shifted to other bills and no time was allowed for opposition. Minutes before a 1 p.m. “hard stop,” DBA International’s representative, Don Maurice, addressed the committee in opposition to the legislation. You can read DBA International’s written testimony here. Encore Capital’s written testimony is here.
David Reid, director of Government Affairs and Policy at DBA International, stated DBA has serious concerns with the bill. “We will be working with industry participants and the sponsor of the bill towards legislation that enhances consumer protections without harming the credit industry,” Reid said. DBA was active earlier this year in Maine in opposing a similar bill.
Symposium to Explore Mass. Bill and other State and Federal Activity
The Massachusetts legislation along with other pending state and federal activity will be discussed in more detail during DBA International’s upcoming Symposium on Nov. 12 in Burbank, Calif. Registration for that event is available here.