An Overview of PA Debt Collection Laws
The landscape of debt collection in Pennsylvania is governed by both federal and state laws. These laws are designed to afford consumers certain protections and prohibit unfair debt collection practices. Knowing your rights under these laws is vital to understanding the avenues available to you in defending against the abuses of debts collectors.
Under federal law, the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. ("FDCPA"), prohibits debt collectors from using unfair, deceptive, or abusive practices to collect debts. Pennsylvania state law also regulates debt collection through the Pennsylvania Collection Agency Act, 69 P.S. § 503 et seq. ("PCA").
The PCA requires that every person or collection agency wishing to engage in the business of collecting consumer debts in Pennsylvania must first obtain a license from the Pennsylvania Department of Banking and Securities.
Some of the protections provided to consumers under federal law are:
The Third Circuit has held that the FDCPA is a remedial law designed "to protect consumers from a host of unfair, harassing, and deceptive debt collection practices." Hutchinson v. Delaware, 994 F.2d 118, 122 (3d Cir. 1993). The FDCPA provides a private right of action to a consumer who has been victimized by an illegal debt collection practice , or who has been deceived or misled by the debt collector. Under the act, a person may bring a civil action in a United States District Court where venue is proper, or in a State court of competent jurisdiction id § 1692k(e). If found to have violated the act, a debt collector is liable for actual damages. Id. § 1692k(a)(1). Additionally, they are subject to payment of costs and a reasonable attorney’s fee as determined by the court. Id.
The Pennsylvania Collection Agency Act includes similar protections to consumers. Under the act, it is unlawful for a creditor or debt collector to: The PCA provides for criminal and civil penalties for violations of its provisions. The Attorney General, district attorneys, or any person may bring an action in the appropriate court for enforcement of this act. Id. § 506A. A debt collector found to be in violation of the act may be fined $1,000.00, or imprisoned for one year, or both. Id. § 506C.
In addition to protecting consumers, Pennsylvania law also protects creditors. During Pennsylvania bankruptcy proceedings, if a debtor is found to have violated the stay order, the debtor may be required to repay any debt collector’s fees incurred in seeking payment. See In re Smith, 1992 WL 52842 (E.D.Pa.).
The federal Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., governs consumer credit report and collections.
What is a Statute of Limitations on a Debt?
It is important to understand the statute of limitations in debt collection. For those of you who do not know, there is a statute of limitations in collecting on various debts that you may owe. To simplify this even more, a statute of limitation is essentially a time period in which a certain action has to be taken regarding the debt or it will no longer be able to be collected upon. The time period for the statute of limitations varies depending on the type of debt owed. There is no statute of limitations for most debts while a debt may be collectible for up to 30 years about other debts that are owed.
If you have a creditor calling about a credit card debt, this debt would be collectible for up to 4 years or the credit card company would have 4 years to collect on this debt. How this works out on practical terms, if you have an account with a credit card company and you miss a payment or two, they cannot sue you for breach of contract to collect upon that debt by claiming you are in default. However, let us assume that 4 years passes and you have never worked on a settlement with them. If they attempt to sue you after the 4 year time period, they are barred from collecting upon that debt because the statute of limitations has expired and you can raise that defense to avoid having to settle the debt or face collections litigation.
Now, for those who have property owned by mortgage lenders. Because the mortgage allows for the lender to collect upon the debt by taking possession of your property, the statute of limitations is 20 years. This means that if you default on your mortgage payments for four years and the lender or bank does not file a lawsuit against you to either collect on the debt or remove you as owner of the property through foreclosure proceedings, they are barred, after the statute of limitations expires, from collecting upon that debt and remaining as an owner of the property.
This is not true for taxes owed to the state of Pennsylvania. Unlike other debts owed to private creditor, there is no statute of limitations in collecting upon the debt. That is why you see and hear advertisements from tax attorney and bankruptcy attorneys offering relief and protection from tax debt because there is no statute of limitations in collecting tax debt from a debtor.
Essentially, unless there is some type of agreement between the parties to extend the statute of limitations on the debt, the creditor only has a limited time to collect on the debt. Otherwise, the creditor must present evidence of the debt to the court or other body and seek collection there from. In order for there to be a collection proceeding with regard to the debt; the creditor must present the accounts statement regarding the debt to the court.
Statute of Limitations on Debts in Pennsylvania
The statute of limitations in Pennsylvania for debt collection varies based upon the type of debit at issue. A written contract will have a ten (10) year statute of limitations in Pennsylvania. An oral contract, on the other hand, will only have a four (4) year statute of limitations. There is a four (4) year statute of limitations for actions upon a promissory note, but the statute of limitations will run from the last date of payment, not the date of default. For a credit card debt, it is considered a written agreement subject to the ten (10) year statute of limitations.
Impact of a Statute of Limitations on a Debt
If the statute of limitations has expired, the creditor may not pursue the debtor for repayment of the expired debt. At this point, the debtor has an absolute defense to any lawsuits brought by the creditor and the creditor is simply out of luck.
It is important that a creditor not wait too long to pursue repayment of a debt. While the statute of limitations is six years under Pennsylvania law for the majority of claims, some essential credit documents such as mortgage notes obligate the borrower to make payments over a period of 30 years resulting in a lengthy repayment term during which time the creditor must have filed suit or 6 years after the last payment due under the note, or else the statute of limitations will pass and the creditor may no longer bring suit against the debtor for that debt.
Alternatively, if a creditor makes a payment demand after the statute of limitations has passed, but before the expiration of any applicable mortgage foreclosure deadlines, then the creditor may protect itself from the statute of limitations by filing a complaint within the 6 year statute of limitations, even if it takes 10 or more years to prosecute the action through a sheriff’s sale. A creditor has up to 20 years to collect on a judgment once the judgment is initially obtained, and satisfying a judgment will renew the judgment period for an additional period of 20 years.
If a debtor does raise the defense at any time, the creditor will need to show some action that tolled the statute of limitations, such as an agreement made by the debtor to pay, or some other action that showed the debtor’s intention to repay. Proving this can be difficult, and therefore the creditor will want to bring the action to enforce its claim prior to expiration of the statute of limitations.
Special Situations and Exceptions
Some exceptions and special circumstances exist in Pennsylvania that may alter the statute of limitations.
Equitable Estoppel
If a plaintiff conceals information designed to prevent the defendant from "discov[ering] the wrong," the time period for statute of limitations purposes does not start until the defendant knew or should have known of the wrong. CMM Cable Rep., Inc. v. City of Philadelphia, 958 A.2d 1174, 1187 (Pa. 2008).
Tolling of the statute of limitations may also apply in some instances where such doctrines exist and apply. For example, the statute of limitations may be tolled for the time period that a lien is being pursued as part of a mortgage foreclosure action against the debtor’s property. See Capital One Bank (USA), N.A. v. Kulp , 121 A.3d 431 (Pa. Super. 2015) (discussing applicability of tolling doctrine in mortgage foreclosure).
Acknowledgment
When a party acknowledges a debt, a new contract emerges, which triggers the statute of limitations anew. See Crossroads Financial, L.L.C. v. Ceiba Soc. Fin. Trust Corp., 13 A.3d 352 (Pa.Super. 2010) (statute of limitations not tolled where promissory note expressly stated "[a]ll payments are past due."). In Pennsylvania, an acknowledgment of a debt must be in writing and signed by the debtor. Rittenhouse Entm’t Corp. v. AT&T Global Info. Sols. Co. LP, 532 F. App’x 229, 233 (3d Cir. 2013).
Minority
Creditors with those who are minors must often wait until the minor reaches the age of majority. See 42 Pa. C.S. § 5538.
Disabilities
Minors, the insane, and the unincorporated associations are subject to tolling of statute of limitations. See 42 Pa. C.S. § 5531.
What Can a Consumer Do If Harassed by Debt Collectors
If a consumer is contacted by a given creditor or their collection agency for a debt that is beyond the Pennsylvania Statute of Limitations (4 years for contract, up to 6 years for notes & obligations), they have several tools available both under statute and in General. Many will view a 10-year old debt as being indefensible in Court, and think little of this harassment. However, there are many counterpoints a consumer can make in rebuttal to a collection phone call – and some applicable remedies under statute.
Firstly, recognize that it is a violation of both the Fair Debt Collections Practices Act (FDCPA) and the Pennsylvania Fair Credit Extension Uniformity Act (FCEUA) for a collection agency to continue a harassment campaign after a consumer has given notice that they do not owe the debt.
Many consumers often give "this is not my debt, please send me the paperwork evidencing this debt" as the first response to a collection phone call. They may go further and ask for the name of the person calling, the Practice location and the number, and the collection agency they are representing. However, most importantly, they should always specifically instruct the collection agency to stop contacting them – so long as this request is clearly communicated at any time in writing, it is sufficient to block further communications from that collection company.
Some common demand letters include: "You have violated federal law for the last time", and "Please do not ever call again" and "You have made no attempt at mitigation in good faith and your business practices are illegal."
If a collector continues to try to collect after that point, they are committing a duplicitous act in the traditional sense of the word. The plaintiff need not show "reprehensibility" on the part of the debt collector, and some Courts will allow statutory damages without proof of injury to plaintiff and allow recovery of reasonable attorney’s fees and costs as well.
Many newer lawyers are unaware of this cause of action and its potency – it is one that must be used vigorously to defend against continued harassment by the credit company. In addition, these violations, in a class action setting, can be a basis for exemplary damages (in excess of compensatory damages) under Section 8343 of the Pennsylvania Judicial Code.
The Penalty to Creditors for Violation of the Statute of Limitations
In Pennsylvania, creditors are not legally able to sue consumers after the statute of limitations has expired. If a creditor initiates a lawsuit against a consumer after the limitations period, the consumer must raise the defense as soon as practicable. If the time limitation is raised, the court will dismiss the lawsuit and enter judgment for the consumer. A successful limitations defense will have the same effect on the creditor as if the consumer had prevailed in a fully litigated action. The court proceeding will end with the consumer prevailing as a matter of law.
The consequences for creditors who try to collect on a debt after the statute of limitations has run do not end at dismissal. That’s because the Fair Debt Collection Practices Act (FDCPA) prohibits creditors from using unfair and unconscionable actions to try to collect debts. Courts have long recognized the unfairness of suing a consumer after a debt is beyond the applicable statute of limitations, and numerous courts have found that such collection efforts are violations of the FDCPA.
The majority of courts have found FDCPA liability from the use of stale debt in bankruptcy. Those have found FDCPA liability for violations of the following subsection of Section 1692e:
(4) Use of any language or symbol, other than the debt collector’s address, which indicates that the debt collector is in the business of collecting debts or of information concerning consumers.
The Third Circuit, in Hyman v. Tate, 437 F.3d 854 (2006), adopted this view when it held that a creditor violates the FDCPA by filing a proof of claim to collect on a time-barred credit card debt in bankruptcy. In doing so, the court noted that, "In filing the Proof of Claim, [the creditor] asserted a claim that was both time-barred under North Carolina law and subject to discharge in the debtor’s bankruptcy" and that "We believe that the filing of such a Proof of Claim violates the Act’s prohibition against the use of ‘any false , deceptive, or misleading representation.’"
The court in Hyman also found a violation of the following subsection of Section 1692e: (10) Use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.
Most of the federal district courts to address the issue have held that a creditor violates the FDCPA by filing a proof of claim to collect a time-barred debt. See, e.g., Field v. Wilber Law Firm, 383 F.3d 562, 569 (6th Cir. 2004); Johnson v. Midland Credit Mgmt., Inc., 301 F. Supp. 2d 1101, 1104-05 (N.D. Ill. 2004); In re Lambert, 2003 WL 21646391, at *5 (Bankr. D. Mass. July 9, 2003) ("If a creditor files a proof of claim or an objection to exemption on a time-barred debt, then it is essentially initiating a ‘debt collection action’ even though the context is a bankruptcy case."). Some courts have held that there is no FDCPA violation where the creditor did not specifically make a demand for payment in the proof of claim. See, e.g., Aldrich v. McGill, 2014 WL 2754590, at *7 (N.D. Ill. June 17, 2014) ("[T]he mere filing of the Proof of Claim, when combined with the lack of demand for payment contained in the claim, does not rise to the level of misrepresentation").
Nevertheless, many lawyers know that creditors, including debt collectors, frequently attempt to collect these expired debts. I charged that this is what happened to a client when CACH, LLC used a debt that was banned from use under the one year statute of limitations. They later filed a lawsuit against him on this old debt. We raised the statute of limitations in our Answer and filed a Motion for Judgment on the Pleadings to have the lawsuit dismissed.
