A collector attempting to collect a debt in New Mexico now has a duty to make a "good faith" determination whether the debt is time-barred under a new rule recently adopted by the New Mexico Attorney General.

If a collector "knows or has reason to know" that a debt is time-barred, the rule requires the collector to provide a new disclosure when making oral or written requests for payment. The rule became effective December 15, 2010, but the Attorney General announced that it will not be enforced until March 15, 2011, to give debt collectors an opportunity to implement the required changes. National banks and federal thrifts need to consider whether the rule will apply to them beginning on March 15 or on July 21, 2011, the effective date of the new preemption rules in the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Under the rule, a "debt collector" is any person who in the regular course of business collects or attempts to collect a debt from any person in New Mexico, including third-party debt collectors subject to the federal Fair Debt Collection Practices Act and  the original creditor and any assignee of the original creditor. The new disclosure, which must be prefaced with a statement that it is legally mandated and not legal advice, must contain the following information:

  • That the debt is, or may be, unenforceable through a lawsuit because the time for filing a lawsuit has, or may have, expired
  • That the debtor cannot be required to pay a debt that is time-barred through a lawsuit
  • That the debtor is not required to take certain actions such as signing an admission of, acknowledgment of, or new promise to pay the debt
  • An explanation that taking such actions can result in the revival of the statute of limitations

Use of model language provided by the rule will be deemed to satisfy the new disclosure requirement. The rule mandates when the new disclosure must be given orally and how and where it must appear in written disclosures.

The rule directs debt collectors to only give the new disclosure to a debtor whom a collector "reasonably and in good faith determines owes a debt that is time-barred." While it is a defense to an erroneous determination that a collector made the error in good faith after exercising reasonable efforts, the rule creates a rebuttable presumption of the lack of reasonable efforts and good faith if there is an absence of documentation. As a result, debt buyers and collectors acting on their behalf will need to obtain the underlying documentation for the debts they attempt to collect in New Mexico or develop other methods to satisfy the rule's "reasonable efforts and good faith" standard. 

A violation of the rule constitutes a violation of the New Mexico Unfair Practices Act, which provides for actual damages in private class actions. The New Mexico Attorney General can also recover civil penalties of up to $5,000 per violation for willful violations. New Mexico has a six-year statute of limitations for actions on written contracts.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). For more information, please contact group Chair Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com; Vice Chair Jeremy T. Rosenblum, 215.864.8505 or rosenblum@ballardspahr.com; John L. Culhane, Jr., 215.864.8535 or culhane@ballardspahr.com; Barbara S. Mishkin, 215.864.8528 or mishkinb@ballardspahr.com; or Mark J. Furletti, 215.864.8138 or furlettim@ballardspahr.com.

 


 

 

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