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New Texas Debt Buyer Legislation Would Require More Notices, Addresses Legal Actions 

Newly introduced legislation in Texas, House Bill 996, addresses when a debt buyer can initiate legal action or arbitration to collect a consumer debt and requires specific notices with respect to out-of-statute debt.

“Debt buyer” is defined as “a person who purchases or otherwise acquires a consumer debt from a creditor or other subsequent owner of the consumer debt, regardless of whether the person collects the consumer debt, hires a third party to collect the consumer debt, or hires an attorney to pursue collection litigation in connection with the consumer debt. The term does not include:

  • a person who acquires a charged-off debt incidental to the purchase of a portfolio that predominantly consists of consumer debt that has not been charged off; or
  • a check services company that acquires the right to collect on a paper or electronic negotiable instrument, including an Automated Clearing House (ACH) authorization to debit an account that has not been processed.”

The legislation provides that a debt buyer cannot commence legal action or initiate arbitration “later than the earlier of:

  • the fourth anniversary of the date of the consumer’s last activity on the consumer debt; or
  • the expiration date of any otherwise applicable statute of limitations.”

Unlike several other states that require one of two notices for collecting out-of-statute debt, determined only by age of the debt, the Texas debt buyer legislation provides an additional option to account for debt buyers that do not credit report.

First, if the credit reporting period has not expired and the debt buyer does credit report:

“THE LAW LIMITS HOW LONG YOU CAN BE SUED ON A DEBT. BECAUSE OF THE AGE OF YOUR DEBT, WE WILL NOT SUE YOU FOR IT. IF YOU DO NOT PAY THE DEBT, [INSERT NAME OF DEBT BUYER] MAY CONTINUE TO REPORT IT TO CREDIT REPORTING AGENCIES AS UNPAID FOR AS LONG AS THE LAW PERMITS THIS REPORTING. THIS NOTICE IS REQUIRED BY LAW.”

Second, if the credit reporting period has not expired but the debt buyer does not credit report:

“THE LAW LIMITS HOW LONG YOU CAN BE SUED ON A DEBT. BECAUSE OF THE AGE OF YOUR DEBT, WE WILL NOT SUE YOU FOR IT. THIS NOTICE IS REQUIRED BY LAW.”

Third, if the credit reporting period has expired:

“THE LAW LIMITS HOW LONG YOU CAN BE SUED ON A DEBT. BECAUSE OF THE AGE OF YOUR DEBT, WE WILL NOT SUE YOU FOR IT, AND WE WILL NOT REPORT IT TO ANY CREDIT REPORTING AGENCY. THIS NOTICE IS REQUIRED BY LAW.”

The notice would need to be “in at least 12-point type that is boldfaced, capitalized, or underlined or otherwise conspicuously set out from the surrounding written material.”

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Eric Rosenkoetter is based in Maurice Wutscher’s Austin office. For many years, he has focused his practice on various aspects of financial services law. As a litigation attorney, he has conducted every aspect of the litigation process, including countless depositions, motion proceedings, bench and jury trials, and appeals in various courts. In addition, he has significant experience as a compliance and transactional attorney, providing strategic, business growth, legislative, compliance and regulatory advice to national corporations and trade associations. For example, he has drafted consumer contracts and disclosures designed to state-specific statutory requirements, and developed “Best Practices” guides and state-by-state compliance grids, for national financial services companies. He also conducted research and crafted a metrics report for a national trade association with analysis designed to counter the claims of advocacy groups. Eric’s experience also includes working for a national corporation as Executive Counsel, Chief Compliance and Ethics Officer, and Director of Legislative Affairs, and as a federal lobbyist and Director of Government and Public Affairs for a national financial services trade association. In the government sector, Eric presided over approximately 6,000 state administrative hearings, served as a staff attorney for the Missouri Senate, and handled litigation in 33 counties as a regional managing attorney. Eric frequently speaks to audiences on topics relevant to the financial services industry and related advocacy initiatives.

  1. This might bring Texas in line with Wisconsin, Mississippi, North Carolina and California in making the Statute of Limitations not just an affirmative defense, but a bar to recovery by debt buyers. (Its a bar to recovery for original creditors in Wisconsin, Mississippi and maybe California.)

    This would then also make the filing of a Proof of Claim by a debt buyer in a bankruptcy case an FDCPA violation. Midland v. Johnson held that filing a stale proof of claim was not an FDCPA violation (specifically in Georgia, but at that time in 47 states. California’s law is more recent), since such debts were still collectible, even if subject to a defense. By removing the right of collection, this Texas law should change that calculus.

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