States look to crack down on ‘zombie debt’ collectors


Debt collectors who use underhanded techniques to revive so-called “zombie debts” are facing push-back from state lawmakers and regulators.

A recent article in The Washington Post outlined several of the techniques that third-party debt collectors have used to collect on debts that otherwise would have surpassed the statute of limitations.

“Debt collectors lose the right in many states to sue consumers after three or more years. But there’s a loophole: If the consumer makes a payment, even against his or her own will, that can be used to try to revive the life of the debt,” the article stated. In New York, debt collectors usually have 6 years to collect on most debts, though the statute of limitations is anywhere between 4-10 years, depending on the type of debt.

Many of the techniques debt-collectors have used to revive zombie debts fall into a legal and regulatory gray-area, and some states are cracking down on the industry. One technique involves garnishing a small payment—in some instances only a few cents—from a debtor’s checking account. The garnishment, in theory, revives the life of the debt.

Another technique scrutinized in the article involved debt collectors sending people with old debts past their statute of limitations a new credit card offer. “But instead of getting new credit cards, the borrowers were enrolled in a repayment program for their old bills,” the article explained.

Debt collectors have also been accused of misleading debtors into making a small payment to stop debt collection calls and notices. Again, the payments are then used as a means to revive the debt.

“The efforts have contributed to the flood of debt-collection lawsuits clogging courts across the country,” the article explained. “In New York City, the number of debt-collection lawsuits surpassed 100,000 last year, compared with 47,000 in 2016, according to data from the New Economy Project, an advocacy group.”

Efforts have failed in New York to pass legislation cracking down on debt collectors. One bill debated this past legislative session would have allowed debt collectors three years instead of six years to collect on some old consumer debts. It also would have prevented the industry from going after the money at all if the debt reached its statute of limitations.

While the legislation stalled, the state Department of Financial Services appears to be closely scrutinizing the industry. The DFS recently sent subpoenas to six debt-collection firms after the department received numerous complaints, including some involving debt beyond statutes of limitations where demands for payment could not legally be enforced.

To learn more, view The Washington Post’s article.

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