Effective June 11, purchasers of consumer debt will face tougher requirements when initiating debt collection lawsuits in Washington state. A copy of the recently passed law is available here.
The law applies only to a “legal action,” which is not defined but is used in the context of the filing of a complaint. Also, a legal action must concern a “claim,” which is defined as “any obligation for the payment of money or thing of value arising out of any agreement or contract, express or implied.” Activities directed at collection of a “claim” that do not include a “legal action” are not impacted.
A Very Broad Definition of a “Debt Buyer” Likely to Capture Unsuspecting Lenders and Investors
A debt buyer is defined here as “a person or entity that is engaged in the business of purchasing delinquent or charged off claims for collection purposes, whether it collects the claims itself or hires a third party for collection or an attorney for litigation in order to collect such claims.” The language is almost verbatim from legislation passed in Colorado in 2017. And, like Colorado, there are no stated exceptions for bank and non-bank lenders and others who may acquire defaulted or charged-off debt incidental to a larger portfolio, as is the case in earlier legislation passed in Oregon in 2017.
“Legal Action” Requirements for Complaints and Default Judgments
When filing a complaint or seeking a default judgment in Washington state to collect a claim, debt buyers will be required to satisfy requirements for various documents or information which must either be attached to or provided in the complaint or submitted to a court, in the case of an application for a default judgment. In many ways, the requirements are similar to those in Colorado.
For example, if the lawsuit alleges a breach of contract, a copy of the terms and conditions in place at the time of the most recent monthly statement recording a purchase transaction, payment, or extension of credit must also be attached. It does not impose a similar requirement for lawsuits alleging “account stated” or other legal claims.
Another requirement concerns claims, “based on a credit card debt for which a signed writing evidencing the original debt does not exist.” In those instances, a debt buyer must attach “the most recent monthly statement recording a purchase transaction, payment, or other extension of credit.” In this context, it is unclear what is meant by “a signed writing evidencing the original debt.” Unless the extension of credit was made simultaneously with the extension of credit, a credit card agreement itself does not create any indebtedness. Besides, the vast majority of credit card agreements are never signed by debtors, rather an application is signed requesting a credit card product.
Debt buyer complaints must also contain six disclosures:
- That the action is being brought by, or for the benefit of, a person or entity that is engaged in the business of purchasing delinquent or charged off claims for collection purposes;
- The date the claim or obligation was purchased;
- The identity of the person or entity from whom or which the claim or obligation was purchased;
- That the plaintiff may have purchased this claim or obligation for less than the value stated in the complaint;
- If the claim or obligation was at any time sold without any representation or warranty of accuracy, a statement to that effect; and
- That the action is being commenced within, and is not barred by, an applicable statute of limitations.
Covered Purchased “Claims”
Not all purchased debt will be subject to the new requirements. Since Washington limits the scope to “claims,” the debt must arise from an express or implied contract for the payment of money or “a thing of value.” And, even if the debt would qualify, the new requirements only apply to debt acquired after June 11.