FTC Gives More Guidance on Expired Debts

Debt collectors routinely try to collect on debts that they know would not be enforceable in court. They may even try to get you to restart the debt by making a partial payment or by transferring the old debt to a new credit card. But, in a lawsuit settlement with one of the biggest debt collectors, the FTC lets the debt collection industry know that collecting on expired, or time-barred debts, is not ok.

The FTC sued Asset Acceptance, a company who might be listed on your credit report, following allegations that the company violated several rules including: telling consumers they owed debt that the collector may not have been able to prove, failing to tell consumers that their debts were past the statute of limitations, and failing to tell consumers that a partial payment would extend the statute of limitations.

In addition to a civil penalty of $2.5 million, Asset Acceptance has agreed to inform consumers when their debts are too old to be legally enforceable and to let consumers know that a partial payment would essentially restart the statute of limitations on that account. Asset Acceptance also has to inform consumers when they’ve placed a negative account on the consumer’s credit report.

While a judge hasn’t signed off the terms of the settlement, they set a precedent for what the FTC expects of the collection industry. The agency has also released a new publication, “Time-Barred Debts: Understanding Your Rights When It Comes to Old Debts,” to help consumers better understand what to do about old debts.

You may know that the statute of limitations varies by states. It’s generally between three and six years, but is as high as 10 or 15 years in a handful of states. You can confirm the statute of limitations in your state with an attorney or your Attorney General.

Remember that debt collectors can contact you about time-barred debts, that is those debts that have passed the statute of limitations. However, they can’t sue you for those debts. You’re allowed to ask a debt collector if that debt is in fact time-barred. The collector isn’t required to answer, but if they do answer, they must tell the truth. The FTC also recommends asking the collector for the date of your last payment on the account. You can use that information to figure out if the statute of limitations has expired.

Remember that there’s a difference between the statute of limitations and the reporting time limit. The reporting time limit is how long debts can be listed on your credit report. It’s possible for time-barred debts to still be listed on your credit report if the statute of limitations for that debt is less than seven years. And because some debts have statute of limitations that are longer than seven years, it’s possible to be sued for a debt that’s not on your report.

If a debt is passed the statute of limitations, you might choose to ignore it until it falls off your credit report. Or, you can try to negotiate a pay for delete where the collector removes the account in exchange for payment. Make sure you get any agreement in writing before making a payment.

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