OLR Bill Analysis
AN ACT CONCERNING CONSUMER COLLECTION AGENCIES AND DEBT COLLECTION ACTIONS.
This bill makes changes to the laws that govern creditors and consumer collection agencies. Among other things, it:
1. expands the scope of debts that a consumer collection agency may collect on behalf of a creditor to include federal income tax on behalf of the U.S. Department of Treasury;
2. prohibits a consumer collection agency from assessing any interest, fee, charge, or expense on the debts they attempt to collect; and
3. creates new procedural requirements, with penalties for violations, that creditors and consumer collection agencies must follow when initiating a cause of action against a consumer who is a Connecticut resident.
It also makes minor, technical, and conforming changes.
EFFECTIVE DATE: October 1, 2016
§§ 1-5 — CONSUMER COLLECTION AGENCIES
Federal Income Tax Debt Collection
The bill specifies that a consumer collection agency is acting in Connecticut if it collects from federal income tax debtors who live in the state. This means that anyone who collects federal income tax debt from a Connecticut resident is subject to the requirements of the statutes that govern consumer collection agencies, which includes obtaining a license from the Banking department and maintaining specified bonding and record keeping requirements.
Under the bill, "federal income tax" means all federal taxes levied on the income of a natural person or organization by the U.S. Department of Treasury under the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as amended from time to time.
The bill also allows anyone damaged by the wrongful conversion of federal income tax debtor funds received by a consumer collection agency to recover damages from the bond such agency filed with the Banking commissioner.
Under the bill, a "federal income tax debtor" is any natural person or organization who owes a debt to the U.S. Department of Treasury.
Under the bill, a consumer collection agency, when communicating with a federal income tax debtor, is prohibited from (1) communicating in the name of an attorney or on an attorney's stationery or (2) preparing any forms or instruments that only attorneys are authorized to prepare.
The bill adds to the prohibited practices for consumer collection agencies. Specifically, it prohibits them from demanding, adding, imposing, or obtaining in any manner any interest, fee, charge, or expense incidental to the principal obligation for collection from the consumer debtor.
By law, a consumer collection agency that engages in a prohibited practice maybe subject to license suspension or revocation. In addition, violators may be subject to a fine of up to $500, up to six months in prison, or both (CGS § 36a-810).
Third Party Consumer Collection Agency
Currently, a third party consumer collection agency must deposit funds collected on behalf of others in one or more trust accounts maintained at a bank, Connecticut credit union, federal credit union, or out-of-state bank that maintains a branch in Connecticut. Under the bill, these institutions must be federally insured.
§§ 6-8 — LEGAL ACTION FOR DEBT COLLECTION
The bill creates new procedural requirements for creditors and consumer collection agencies in any cause of action they initiate for a liability on debt owed by a consumer who is a Connecticut resident (i.e., consumer debtor).
§ 6 — Complaint
Under the bill, a creditor or consumer collection agency must attach a copy of the following to the complaint:
1. the contract or other document that shows the original debt and has the consumer debtor's signature or, if the debt is credit card debt and no such signed documentation exists, copies of the documentation generated when the credit card was used and
2. the assignment or other document that (a) shows that the plaintiff creditor owns the debt; (b) has the original account number and name associated with the debt; and (c) if the debt has been assigned more than once, a copy of each assignment or other documentation establishing an unbroken chain of debt ownership by the plaintiff creditor.
§ 7 — Evidence
A creditor or consumer collection agency must file evidence with the court to establish the amount and nature of the debt before the court enters a default judgment or summary judgment against the consumer debtor.
The evidence presented by the creditor or consumer collection agency must be duly authenticated and admissible in accordance with the rules of evidence. It must contain the following:
1. the original account number associated with the debt;
2. the identity of the original creditor;
3. the amount of the original debt;
4. an itemization of charges and fees, including interest claimed on the debt and the basis for such interest;
5. the original charge-off balance on the debt, if applicable;
6. an itemization of charges incurred after charge-off, if applicable;
7. the date of the consumer debtor's last payment, if applicable; and
8. the names of all persons or entities that owned the consumer debt after the original creditor, if applicable.
The bill defines "charge-off" as a creditor declaration that a debt is uncollectable and has been written off as a bad debt expense on the creditor's income statement and removed from its balance sheet.
The creditor or consumer collection agency must indicate when they have redacted any of the items listed above and submit a privilege log to the court. Under the bill, a "privilege log" describes documents or other items withheld from production in a civil lawsuit in a manner that allows other parties to assess the claim of privilege.
Creditors and consumer collection agencies must (1) provide all items listed above to the consumer debtor in writing not later than five business days after the initial communication with such debtor and (2) cease all collection efforts until they have done so.
(The bill makes two incorrect internal references with regard to the definition of “creditor” and “consumer debtor.”)
§ 7 — Statute of Limitations
The bill prohibits creditors and consumer collection agencies from initiating a cause of action to collect debt from a consumer when they know or reasonably should know that the applicable statute of limitations on such cause of action has expired (see BACKGROUND).
When the applicable statute of limitations has expired, any subsequent payment toward or written or oral affirmation of a debt by the consumer does not extend the limitations period.
§ 8 — Penalties for Violations
A creditor or consumer collection agency that violates any of the new procedural requirements described above will be liable to anyone harmed by such conduct in an amount equal to the sum of:
1. actual damages sustained by such person;
2. if such person is an individual, any additional damages awarded by the court, up to $1,000; and
3. legal fees incurred to successfully enforce liability, including reasonable attorney's fees at the court's discretion.
As is the case for creditors under existing law, the bill subjects any consumer collection agency that uses abusive, harassing, fraudulent, deceptive, or misleading representation, device, or practice to collect or attempt to collect any debt, to the same penalties described above.
Federal Statute of Limitations
The federal Fair Credit Reporting Act prohibits a consumer reporting agency from reporting accounts that have been (1) charged off (i.e., the original creditor deems it uncollectable); (2) placed for collection; or (3) subject to similar action (e.g., delinquent debts) that are more than seven years old, unless they involve a credit transaction of $150,000 or more. The seven-year period starts 180 days from the date of the original delinquency (15 USC § 1681c(i)).
Joint Favorable Substitute