A little-known fact about consumer debt: It often has a statute of limitation, which means debt collectors can’t sue borrowers to recover the payments after a specified amount of time. When this happens, the debt is usually so old, banks and creditors have passed it off to collection agencies. While the length of the statute varies by state and type of debt, most consumers can’t be sued after a few years.
But debt collectors have a loophole for these “dead debts.” If the borrower makes a payment, it can revive the debt, allowing the collection agency to sue. And collection agencies are getting creative about exploiting the loophole.
Renae Merle covers business for the Washington Post, where she wrote about these debt collection methods. She spoke to “Marketplace” host Kai Ryssdal about the tricks collectors are using to revitalize old debts. Below are some of their methods.
Garnishing borrowers’ wages
Merle spoke with a woman who had 19 cents garnished from her checking account, which counted as a payment.
“If you had gone back to the last purposeful payment she had made, the debt would have been too old to collect,” Merle said. “But since they were citing the 19 cents, they said they were still legally able to sue her for that bill.”
Offering to stop frequent calls regarding borrowers’ debt
“I’ve heard of cases where the debt collector calls and says, ‘Look, I’ll stop calling if you just pay me 25 bucks,’ and the consumer doesn’t realize that if they pay that $25, that allows the debt collector to sue them.”
Convincing people to sign up for new credit cards to pay off old debts
This method has been addressed by the Federal Trade Commission, which settled with a debt collector for alleged consumer deception in 2012.
“The consumer didn’t realize that the credit card was actually just reviving the old debt,” Merle said.
Click the audio player above to hear Ryssdal’s interview with Merle.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.