The Most Important Law in North Carolina When a Debt Collector is Collecting an Old Debt
It is illegal for a “collection agency” (debt collector or debt buyer) in North Carolina to collect a debt that is past the statute of limitations unless it tells the consumer from whom it is collecting that they are not obligated to pay it. This is a powerful but often-overlooked consumer-protection law.
The Collection Agency Act in North Carolina contains numerous provisions intended to protect consumers from unfair and deceptive debt-collection practices. It doesn’t apply to every company collecting debts, though.
Rather, the Collection Agency Act applies to what it calls “collection agencies.” This is a legal term of art. Collection agency, in short, means any company that collects debts on behalf of the person to whom the debt is due, and “debt buyers.” A debt buyer is a company that buys bad debts in order to collect on them. As opposed to a debt collector, who is collecting for someone else, a debt buyer owns the debt.
The statute defines “collection agency” as follows:
"Collection agency" includes any of the following:
Any person that procures a listing of delinquent debtors from any creditor and that sells the listing or otherwise receives any fee or benefit from collections made on the listing.
Any person that attempts to or does transfer or sell to any person not holding the permit prescribed by this Article any system or series of letters or forms for use in the collection of delinquent accounts or claims which by direct assertion or by implication indicate that the claim or account is being asserted or collected by any person, firm, corporation, or association other than the creditor or owner of the claim or demand.
An in-house collection agency, whereby a person, firm, corporation, or association sets up a collection service for his or its own business and the agency has a name other than that of the business.
A "debt buyer." As used in this subdivision, the term "debt buyer" means a person or entity that is engaged in the business of purchasing delinquent or charged-off consumer loans or consumer credit accounts, or other delinquent consumer debt for collection purposes, whether it collects the debt itself or hires a third party for collection or an attorney-at-law for litigation in order to collect such debt.
Notably, the term “collection agency” does not apply to creditors collecting their own debts (such as banks or credit card companies collecting past-due amounts), attorneys, or mortgage companies.
The statute of limitations on credit cards and other contracts is three years, under North Carolina law. Sometimes a credit card agreement will use the law of a different state with a longer statute of limitations, but most courts in North Carolina agree that the law of the state a collection lawsuit is filed in determines the statute of limitations – not the law of the cardholder agreement. A case from the North Carolina Supreme Court supports this rule, explaining that state procedural rules such as statutes of limitations govern the litigation even though a contract may specify that the substantive law of some other jurisdiction may apply. Boudreau v. Baughman, 322 N.C. 331, 340, 368 S.E.2d 849 (1988).
When a debt is past the statute of limitations, that means you cannot be sued in court for it. This does not, however, mean that you cannot be voluntarily asked to pay for it. Problems arise when debt collectors or collection agencies ask consumers to pay old debts past the statute of limitations – without letting them know they don’t have to.
That’s where the key provision in the Collection Agency Act steps in. That provision is G.S. § 58-70-115. It says that a collection agency is prohibited from asking for payment of a debt that is past the statute of limitations unless the collection agency expressly tells you that you are not legally obligated to pay it.
Under this law, if a debt is past the statute of limitations, the collection agency should tell you – whether on the phone or in any dunning letters – that you are not required to pay it.
In practice, though, this does not always happen. In our firm’s experience, numerous consumers have told us that collectors fail to say when a debt does not legally have to be paid.
The main problem with enforcing this law is that consumers often do not know whether or not the statute of limitations has passed. Our firm does an analysis based on credit reports, collection letters, and the contract to determine whether the debt must be paid.
If a collection agency or debt collector fails to tell you that a debt is past the statute of limitations, you may be entitled to damages and attorney’s fees. The Collection Agency Act says that the penalty is up to $5,000 if a debt collector does not tell you.
The lesson from all this is that you should be careful when a debt collector contacts you to ask for payment. In many cases, the statute of limitations may have passed and you may not be legally obligated to pay it. And, if a collector doesn’t tell you that the statute of limitations has passed, you might even be entitled to bring a lawsuit against them for violating the Collection Agency Act.
Dye Culik PC is a consumer protection law firm with offices in Charlotte, North Carolina and Boston, Massachusetts. We represent consumers and small businesses against debt collectors, collection agencies, credit card companies, and other creditors in negotiation and litigation of debt-collection matters. If you have been contacted by a debt collector, contact us to see if we can help.