Texas lawmaker wants to send ‘zombie debt’ to the grave

State Rep. Nicole Collier is trying to root out zombies in Texas.

Zombie debt, that is.

The Fort Worth Democrat has filed a bill geared to stop third-party debt collectors from tricking Texans into reviving debts so old they no longer legally have to be paid.

“Whenever there’s a debt, (creditors) have an opportunity to sue debtors for unpaid bills,” Collier said. “If (debtors) don’t pay, they can go after that person and sue” to collect what is owed.

“But there’s a statute of limitations, which is typically four years from the date of the last payment.”

Many businesses write off the debt and sell it to third parties, generally for pennies on the dollar. Then those companies try to collect the unpaid debt.

The problem, Collier said, is that many third-party collectors don’t tell debtors that they are no longer legally required to pay the amount owed. And they target many low income and elderly people who may not remember the debt, or perhaps don’t even owe the money but have the same name as someone who does.

If third-party collectors convince or trick someone into making a token payment on the debt — even of just a few dollars — then the statute of limitations restarts, even if the debt had been dead.

That’s why it’s called “zombie debt,” because it’s long-gone debt that can come back to haunt consumers.

So Collier filed House Bill 1767 — the Fair Consumer Debt Collection Act, or “Zombie Debt” bill — that is geared to prevent debt collectors from contacting Texans about old debt after the four-year statute of limitations expires. It also prevents any arbitration or lawsuits against consumers after that four-year period.

Anyone who violates this law faces attorneys fees, costs and actual damages, according to the bill.

If the Legislature approves this measure, and if Gov. Greg Abbott signs it into law, it could go into effect Sept. 1.

“I’m not trying to say you shouldn’t pay your debtors. Everyone should. That’s even in the Bible,” Collier said. “But third-party debt collectors should follow the law.

“They don’t tell people they don’t have to pay for it. They omit pertinent facts that are very vital, which can be deceptive. We don’t want to restart the clock for old debt.”

Big business

Zombie debt is a major business.

Some people who receive calls or letters about long-overdue debt may not remember owing the money at all. And some don’t. Maybe the bill was a result of identity theft. Or perhaps the debt was settled with a creditor and wrongly listed as still due.

Or maybe it truly is owed and someone can’t or won’t pay the bill.

In Texas, collectors and creditors have four years after the last payment made on a consumer debt to file a lawsuit or initiate any other action against a consumer.

After that time frame, debts are declared dead because they are out of statute even though they do still show up on credit reports for seven years. Even when a debt is out of statue, that doesn’t mean it’s a forgiven debt.

Each year, debt buyers pick up more than $100 billion of debt, said Neil L. Sobol, associate professor at the Texas A&M Law School in Fort Worth.

“The debt buying industry has been characterized as one of the fastest growing sectors of all financial services,” said Sobol, who wrote a 2014 article on Surviving Zombie Debt Collectors. “A common complaint against debt buyers is that they create zombie debts by pursuing debts that are not legally enforceable and reviving the debts back to life.”

“This dead debt, however, may be revived with the limitations clock starting again if the debtor makes a partial payment or reaffirms the debt,” he said. “As a result, debt buyers have an incentive to create this zombie debt by persuading debtors to make partial payments.”

Experts, including Sobol, offer tips regarding zombie debts: Don’t acknowledge the debt. Ask for copies of the original bill including the name of the company and the amount owed. Avoid default judgments.

And reach out to the Consumer Financial Protection Bureau regarding harassment by debt collectors.

‘Deceptive collectors’

Sobol said Collier’s bill, if it becomes law, definitely would prevent “a dead debt from becoming a zombie debt.”

But a potential problem with the bill “is that it applies only to debt buyers who know or have reason to know that they are collecting on time-barred debt,” he said. “I suspect that many debt buyers may allege that they do not have this information because the information allowing them to determine the limitations period for the debt was not transferred when they purchased the debt.”

Sobol said the bill could be strengthened to make sure that debt buyers share information about the original creditor, and last date of payment, with debtors.

It’s early in the session, which runs through May 29.

And Collier said colleagues from across the state have heard from their constituents about the problem of zombie debt.

She hopes her bill, if it becomes law, will protect Texans from unfair collection practices.

“It is disheartening to know that our most vulnerable populations are repeatedly contacted and targeted by collectors with ‘gotcha’ debt collection practices,” she said.

“We need fair practices and transparency in debt collection so our communities are not worried about being subjected to deceptive collectors.”

This story was originally published February 20, 2017 at 3:52 PM with the headline "Texas lawmaker wants to send ‘zombie debt’ to the grave."