Protecting Consumers from Zombie-Debt Collectors
Neil L. Sobol
Texas A&M University School of Law
February 12, 2014
44 New Mexico Law Review 327 (2014)
The debt-collection business is booming, led by a dramatic increase in the sale and collection of defaulted debts. Annually, debt buyers purchase more than $100 billion in debt (based on the debts’ face value). In a typical debt purchase, buyers pay only a small fraction of face value; in return, they receive extremely limited and often inaccurate information. Many of the debts that buyers seek to recover are dead debts because they never existed, or are no longer enforceable by operation of law. Consumers who receive communications from debt buyers often complain about mistaken identity and identity theft, because they did not incur the alleged debts. Other debt-collection issues arise when debt buyers seek to recover debts that have previously been paid or settled, discharged in bankruptcy, or have become time-barred because the collection period under the statute of limitations has expired.
By obtaining judgments, or persuading consumers to pay a portion of these debts, acknowledge these debts, or enter into new agreements, collectors can resurrect and enforce dead or non-existent debts. The media has labeled these resurrected debts as “zombie debts.” Just as the zombies in movies come back from the dead to terrorize individuals, dead debts may resurface to wreak havoc on consumers. Even if a consumer successfully defeats one zombie- debt collector, the process may restart if the debt is resold.
Legal scholarship has only begun to address zombie-debt issues, and has primarily focused on litigation. However, collectors are often successful in persuading consumers to pay dead debts without filing lawsuits.
Accordingly, this article addresses zombie-debt issues that consumers face before the onset of litigation. It identifies the failure of traditional methods to deal with this growing problem, and proposes amendments to the Fair Debt Collection Practices Act (“FDCPA”) to establish uniform standards for the transfer of information and documentation to debt buyers and consumers. It recommends that penalties and statutes of limitation should deter debt buyers from violating the FDCPA. Finally, the article emphasizes the importance of providing assistance and education to consumers, and suggests that the recently formed Consumer Financial Protection Bureau (“CFPB”) should coordinate a holistic approach at the federal, state, and local levels to combat zombie debts.
Number of Pages in PDF File: 56
Keywords: debt collection, consumer protection, consumer law, debt harassment, CFPB, consumer finance protection bureau, FDCPA, Fair Debt Collection Practices Act, zombie debt, time-barred debts, stale debts, statute of limitations, deceptive trade practice, robo-signing, debt buyer, consumer debt, identity
Date posted: November 15, 2013 ; Last revised: July 10, 2014