CFPB Issues Advisory Opinion on Debt Collection Practices

On April 26, 2023, the Consumer Financial Protection Bureau (CFPB) released an advisory opinion to clarify that it is against the law for a debt collector to sue or threaten to sue in order tocollect a time-barred debt, as defined by the Fair Debt Collection Practices Act (FDCPA) and its implementing Regulation F. If a debt collector, as defined by the statute and regulation, brings or threatens to bring a state court foreclosure action to collect a time-barred mortgage debt, they may be violating the FDCPA and Regulation F.

The CFPB purportedly issued the advisory opinion to affirm that: (1) the FDCPA and its implementing Regulation F prohibit a debt collector, as that term is defined in the statute and regulation, from suing or threatening to sue to collect a time-barred debt; and (2) this prohibition applies even if the debt collector neither knows nor should know that the debt is time-barred. As a consequence, a debt collector who brings or threatens to bring a state court foreclosure action to collect a time-barred mortgage debt may violate the FDCPA and Regulation F.

According to the advisory opinion, because a lot of time has passed on pre-2008 long-dormant loans, some of them have likely become time-barred under state law. Time-barred debts are debts that the statute of limitations has expired on. Statutes of limitations are time limits that provide for bringing suit on legal claims. In most cases, the expiration of the applicable statute of limitations precludes the debt collector from recovering on the debt using judicial processes if raised by the consumer as an affirmative defense. In many jurisdictions, foreclosure actions are subject to a statute of limitations.According to the advisory opinion, the CFPB understands that some debt collectors collecting on long-dormant second mortgages may have filed, or threatened to file, judicial foreclosure actions even though the underlying debt is time-barred. 

Legally speaking, the FDCPA and its accompanying Regulation F oversee the behavior of “debt collectors” in debt collection activities. The FDCPA defines a debt collector as “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” Entities that seek to collect defaulted mortgage loans, along with many attorneys who initiate foreclosure proceedings on their behalf, are considered FDCPA debt collectors.

The FDCPA and Regulation F define “debt” as “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.” Thus, a consumer’s payment obligation that arises from a mortgage transaction for personal, family, or household purposes, such as buying the consumer’s residence, is considered a debt.

It is crucial to note that state court foreclosure proceedings usually qualify as the collection of “debt” under the FDCPA. Therefore, debt collectors that engage in such activities must adhere to the FDCPA and Regulation F’s requirements and prohibitions.

Regulation F bans debt collectors from suing or threatening to sue to collect a time-barred debt. Debt collectors who sue or threaten to sue to collect a time-barred mortgage debt violate the prohibition, even if they neither knew nor should have known that the debt was time-barred.

Moreover, the CFPB stated that a broad range of non-foreclosure debt collection-related activities, such as communicating with consumers about defaulted mortgages, may be subject to the FDCPA. Debt collectors undertaking such activities are subject to the other FDCPA requirements and prohibitions, including but not limited to, the prohibition on falsely representing the character, amount, or legal status of any debt, threatening to take any action that cannot legally be taken or that is not intended to be taken, and selling, transferring for consideration, or placing for collection a debt that the debt collector knows or should know has been paid or settled or discharged in bankruptcy. Debt collectors must also identify themselves as a debt collector in all communications with the consumer (except formal pleadings in connection with a legal action), provide the consumer with validation information in certain circumstances, and respond to consumer disputes adequately before continuing to collect.

To be sure, according to the advisory opinion, even if an FDCPA debt collector engages in actions necessary to undertake a nonjudicial foreclosure action, the debt collector is still subject to FDCPA section 808(6) and Regulation F, 12 CFR 1006.22(e), which generally prohibit taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if the debt collector has no present right or intention to do so.