This past week a bill was introduced by Minnesota Legislators which will require debt buyers in the state to follow strict, new guidelines on the collection activity associated with purchased debt, along with the verification process utilized by the associated accounts receivable management firms.

House bill HF 2996 and Senate bill SF2689 are being championed by Minnesota State Representative Joe Mullery and Senator Ron Latz. The bills seek to require debt buyers filing collection lawsuits against consumers to produce specific documented proof  in advance that the borrower in question owes the unpaid debt.  Under the proposed legislation, failure to attach the required documents to a lawsuit or court summons could lead to penalties of as much as $2,500 per violation, and consumers would have the right to sue for damages.

The proposals also address the issue of “re-aging” debt, which restarts the statute of limitations on the debt after a payment has been made. The combination of the proposed changes will make it much more difficult for debt buyers to pursue consumer debt, especially in situations where the amounts cannot be verified. Under the existing state laws, debt collectors can re-start the clock on debts that have passed the expiration of the statute of limitations through convincing unwary consumers to make a small payment, which re-sets the default date. The proposed legislation is designed to eliminate this deceptive practice, as the documentation required would include a signed affidavit stating the debt has not passed the statute of limitations.

Debt buyers make their living through the purchase of multimillion-dollar debt portfolios that have been charged off by credit-card companies, retailers and others for pennies on the dollar, then seek to make a profit by collecting more than what they paid. The age of the debt bought and sold can vary from just a few months to ten years or more.

The  passage of this legislation may well provide some relief to individuals who have been struggling with debt during these difficult economic times. It is also possible that through the process increasing regulation of debt recovery, the losses on these old debts will result in an even further reduction of available credit to consumers.

Does it not make complete sense that a debt collector should have to prove the debt is valid before beginning collection proceedings?  In fact, taking it one step further, perhaps a creditor should not even be permitted to sell or assign a debt without the original documentation proving that the debt is valid.

What do you think, readers – a long time coming for an obviously needed change? In fact, more appropriate as a Federal action as opposed to leaving it for the states to individually determine? Let us know your thoughts by leaving a comment!

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