Stop Collection Agency Harassment

The North Carolina Legislature has enacted Senate Bill 974, which is effective October 1, 2009. SB 974 is currently on the governor’s desk for her signature. The bill significantly impacts collection of debt by debt buyers. The following is an overview of the bill, and it is important asset buyers as well as traditional third-party debt collectors understand how SB 974 may impact collection efforts in North Carolina.

Debt Buyer is a Collection Agency

The bill incorporates a debt buyer under the definition of a collection agency and specifically defines a debt buyer as a person or entity engaged in the business of purchasing delinquent or charged-off consumer loans or consumer credit accounts, or other delinquent consumer debt for collection purposes, whether it collects the debt itself or hires a third party for collection or an attorney-at-law for litigation in order to collect such debt. SB 974 dictates both active and passive asset buyers are considered a collection agency.

Prohibition on Suing and Arbitrating Time-Barred Debt

SB 974 deems it an unfair practice for a debt buyer or collection agency on behalf of a debt buyer to bring suit, initiate arbitration, or otherwise attempt to collect a debt when the debt buyer or agency knows or reasonably should know such collection is barred by the applicable statute of limitations.

ACA International understands this requirement only prohibits debt buyers and debt collectors collecting on behalf of debt buyers from filing suit or initiating arbitration in an attempt to collect a time-barred debt. Collection efforts such as sending letters and placing telephone calls to consumers are not prohibited as applicable statutes of limitation do not bar such collection activity.

In addition, this provision does not apply to traditional third-party debt collectors collecting debt for the original creditor.

Restrictions on Collection of Debt

The bill provides it is an unfair practice for a debt buyer or an entity acting on behalf of a debt buyer to bring suit, initiate arbitration, or otherwise attempt to collect a debt from a consumer without (1) valid documentation the debt buyer is the owner of the specific debt instrument or account at issue and (2) reasonable verification of the amount of the debt allegedly owed by the consumer. Reasonable verification includes: (a) documentation of the name of the original creditor; (b) the name and address of the consumer as appearing in the original creditor’s records; (c) the original consumer account number; (d) a copy of the contract or other document evidencing the consumer debt; and (e) an itemized accounting of the amount claimed to be owed, including all fees and charges.

Although North Carolina currently requires a collection agency to provide a consumer a receipt of payment if the payment received from the consumer is in cash, SB 974 requires a receipt be provided when any payment is received by or on behalf of a debt buyer. In addition to what must be included in a receipt under § 58-70-70(a), the receipt for payment received by or on behalf of a debt buyer must also include the name of the creditor(s) for whom collected, the account number assigned by the creditor(s), and the account number assigned by the original creditor if different from the current creditor for whom the debt is collected. The receipt must also clearly state whether the payment is accepted as either payment in full, as a full and final compromise of the debt, or state the balance due after payment is credited if the payment is not in full.

These provisions apply to debt buyers and all collection agencies attempting to collect debt on behalf of debt buyers in North Carolina. It does not apply to third-party collectors collecting debt for the original creditor.

Requirements to File Suit

In order for a debt buyer to file suit or initiate arbitration against a consumer, the debt buyer must give the consumer written notice of its intent to file suit thirty (30) days prior to the filing, and the notice must include certain information such as an itemized accounting of amounts claimed to be owed and proof of ownership of the debt.

Moreover, SB 974 requires debt buyers provide their license number and a copy of the contract or other writing evidencing the original debt in the debt buyer’s complaint against a consumer, including information evidencing the original debt and chain of title. If the claim is based on credit card debt and no written signed agreement is available, the debt buyer must provide evidence the credit card was used. The bill also requires debt buyers provide information when seeking entry of a default judgment against a consumer such as an itemization of charges and fees claimed to be owed, the original charge-off balance, an itemization of post charge-off additions, and date of last payment.

If a debt buyer is seeking default or summary judgment against the consumer, the debt buyer must provide evidence to the court establishing the amount and nature of the debt, including providing the following items: (1) original account number; (2) original creditor; (3) amount of the original debt; (4) itemization of charges and fees; (5) original charge-off balance of explanation of how the balance was calculated if not charged-off; (6) itemization of post charge-off additions; (7) date of last payment; and (8 ) amount of interest claimed and basis for the interest charged.

Further, the bill states attorney’s fees will not be awarded absent a signed writing and an unbroken chain of assignment.

Increased Liability for Collection Agencies

The bill also increases civil penalties for all collection agencies in violation of the state’s collection agency provisions to not less than $500 and not more than $4,000 per violation. The remedies are cumulative.

This provision applies to debt buyers and all debt collectors attempting to collect debt in North Carolina.