In what could be a beacon of shifting sentiments towards business interests rather than consumer rights this legal decision is one to watch. The US Supreme Court ruled that the outlawed debts, debts so old that contract law can no longer be enforced, do not need to be disclosed as uncollectable by the creditor when litigation takes place.• A divided Supreme Court ruled Monday that debt collection companies can't be sued for trying to recover years-old credit card debt from people who seek bankruptcy protection.
• The 5-3 ruling is a blow to consumer groups that complain debt collectors are unfairly misleading people into repaying old debts even when they are not required to under the law.
• The court sided with Midland Funding, which was trying to collect $1,879 in debt an Alabama woman had incurred more than 10 years earlier.
• Aleida Johnson argued that Midland was wrong to go after the debt because Alabama law has a six-year statute of limitations for a creditor to collect overdue payments.Creditors have been able to sue for aged debt, even if it is outlawed in the past. Consumers would simply need an affirmative defense that claims the debt was stale (beyond the statute of limitations) and the case would normally be dismissed. However, if the consumer did not raise the issue, or failed to appear, the issuer (or debt buyer) would typically have judgment in their favor. The recent trend shifted towards the consumer, and it was likely that creditors would have to disclose the lack of standing, which would preclude the lawsuit.The decision is of interest for three reasons. -First, this unravels an issue on the CFPB’s radar, indicating a potential shift. Although many issuers felt the pain of CFPB’s audit prowess, they raised many valid integrity issues and have brought some order to the payments world (see Mercator Advisory Group research: Prepare for the Regulatory Trend Focused on Fairness and Clarity and US Consumer Credit Cards: Not Much to Complain About)-Second, it does not give relief to the burden of proof rule in most consumer cases. Good consumer legal advice will require that the balance be properly validated, which is often chaotic in cases of debt sale.-With the Great Recession almost 10 years behind us, it suggests that there may be much more value in those aged receivables often sold for 2 cents on the dollar, not that the economy is back in swing, people are back to work and the foreclosure nightmare is over.So for now, the decision indicates that aged debt can be pursued and that creditors do not need to notify consumers of their rights. The most important thing for consumers is not to ignore a lawsuit or they will simply lose. Here is a credible listing of statute dates by state; not you are lucky if you live in the District of Columbia or Alaska, where the debt is considered stale after 3 years; however Rhode Islanders have 10 years to wait.
Overview by Brian Riley,
Director, Credit Advisory Service at Mercator Advisory Group
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