The Texas Legislature has passed House Bill 996 which limits when a debt buyer can initiate legal action or arbitration to collect consumer debt and requires specific notices with respect to out-of-statute debt. Upon approval by Texas Gov. Greg Abbott, the new provisions will become effective Sept. 1, 2019.
Definition of a Debt Buyer
“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.”
No Lawsuits, Arbitration or Revival
The legislation prohibits a debt buyer from bringing suit or initiating arbitration on consumer debt if the applicable statute of limitations provided by Tex. Civ. Prac. & Rem. Code § 16.004 or Tex. Bus. & Com. Code § 3.118 has expired. Additionally, once the statute of limitations on a consumer debt has expired it cannot be revived.
Notice to Consumer
With the passage of this legislation, Texas joins other jurisdictions (California, Connecticut, Massachusetts, New Mexico, New York, New York City and West Virginia) that require a consumer be provided notice regarding the expiration of the statute of limitations.
In Texas, one of the three required disclosures will apply depending on whether the credit reporting period has expired and whether the debt buyer credit reports.
- 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.”
- 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.”
- 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 must be “in at least 12-point type that is boldfaced, capitalized, or underlined or otherwise conspicuously set out from the surrounding written material.”