Massachusetts Attorney General Maura Healey’s Office offered support this week for proposed legislation that would provide greater protections and relief for consumers in her state who are pursued by abusive debt collectors. Her office testified before the Joint Committee on Financial Services today in favor of the Family Financial Protection Act (FFPA), filed by Senator James Eldridge and Representative Paul Brodeur. The bill addresses a number of problematic practices in the debt collection industry that have resulted in consumers being sued on the basis of inaccurate information for debts they do not owe.

“The Act provides desperately needed relief to the poorest and most vulnerable Massachusetts citizens,” said Consumer Protection Division Chief Max Weinstein who offered today’s testimony pdf format of Testimony on Family Financial Protection Act
 before the committee.

When a borrower has not made a payment in months, or years, the original creditor declares the account a loss. Debt buyers purchase old debts for pennies on the dollar, and pursue payments of the entire amount supposedly due on the account.

“Debt buyers pursue consumers for debts they do not owe, or seek to collect more than a consumer actually owes. Debt buyers pursue consumers for debts that are beyond our statute of limitations. Perhaps most troubling of all, debt buyers target the most vulnerable of our fellow citizens, the elderly, the disabled, and the desperately poor,” according to the testimony.

The AG’s Office regularly receives complaints from Massachusetts residents about the debt collection industry, and since 2006, has averaged approximately 1,300 complaints annually. A recent analysis by the Urban Institute demonstrated that 23 percent of Massachusetts residents – more than one and a half million people – have a debt in the collection process on their credit report.

In just the past few years, collectors have sued hundreds of thousands of Massachusetts consumers, many of whom work minimum wage jobs, live on a fixed-income, are disabled, or are elderly. Some of them cannot appear in court to dispute the debt, and many cannot afford legal representation.

Existing law provides a six-year statute of limitations on debts, allows consumer payments to “revive” the limitations period (leading collectors to pursue debts that are sometimes more than 10 years old), calls for the charging of 12 percent interest post-judgment, and enables judgments to be enforced for up to 20 years.

The FFPA’s key protections would address these problems:

  • Statute of limitations: The statute of limitations would be decreased to three years on consumer debt actions.
  • Protecting consumer income: The amount of net earnings protected from wage garnishment would be increased to $720 per week. Presently, state law exempts wages of only $450 a week from garnishment by debt collectors.
  • Expiration of right to collect: The right to collect on a debt after the statute of limitations has expired would be extinguished.
  • Period for collection on judgment: A collector would only have five years to execute and collect upon a judgment.
  • Post-Judgment Interest Rate: Instead of allowing current 12 percent post-judgment statutory interest rate for consumer debt collection cases, the FFPA would be fixed to reflect current interest rates, which are now at historic lows. Massachusetts currently has one of the highest post-judgment rates in the country.
  • Arrest warrants: The Act would prohibit debt collectors from seeking civil arrest warrants.

insideARM Perspective

The quote from the AG office’s testimony, “Debt buyers pursue consumers for debts they do not owe, or seek to collect more than a consumer actually owes…” is quite a broad generalization, offering no facts to support the statement. While it is true that there these things happen, using anecdotal examples to support legislation that has a broad effect is likely to produce unintended consequences.

This proposed Massachusetts legislation cuts the statute of limitations in half, and makes it illegal to even collect (not sue, but collect) on a debt after that time has passed. It also reduces the period to collect on judgments by 75%. This would have a significant impact on creditors and their actions to collect.

This past summer, Illinois passed new debt collection rules that, evidently, nobody in the industry saw coming. Illinois Public Act No. 227 was quietly signed into law on August 3, 2015. It containing several substantive updates to the Illinois Collection Agency Act (ICAA), and especially affected creditors.

Finally, as reported today by ACA International, leaders from its New York Unit met earlier this week with New York regulators and learned that they too are considering legislation to reduce the statute of limitations in their state.

New York is an example of a state where the ARM industry has been actively engaged. To highlight a few examples in addition to ACA’s efforts, DBA International hosted a symposium with New York regulators earlier this year, and the Consumer Relations Consortium has met multiple times with the Department and also submitted proposed FAQs, some of which have been adopted.

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