Capital One Fees, Credit Report, & Statute of Limitations

Federal law (US Code Title 15, §1681c) controls the behavior of credit reporting agencies. This law is known as the Fair Credit Reporting Act (FCRA). Under FCRA §605 (a) and (b), an account in collection will appear on a consumer's credit report for 7 ½ years. The clock starts approximately 180 days after the date of first delinquency on the account. To learn when an account will be removed by the credit reporting agencies (TransUnion, Equifax, and Experian and others), add 7½ years to the date of first delinquency. Subsequent activity, such as resolving the debt, is irrelevant to the seven-year rule. However, if the debt is a tax lien, that can appear for seven years from the date of payment. A bankruptcy will appear for ten years from the date of the final order. Delinquent federal student loans can be reported indefinitely, i.e., for as long as they are delinquent.

You might wonder where the 180-day rule comes from. The Federal Financial Institutions Examination Council (FFIEC) Uniform Retail Credit Classification and Account Management Policy states that "actual credit losses on individual retail loans should be recorded when the institution becomes aware of the loss." According to OCC Bulletin 2000-20 "... closed-end loans (must) be charged off when 120 days past due and that open-end credit be charged off when 180 days past due."

Add 7 ½ years to the date of first delinquency to find the date federal law determines when the derogatory event should be removed from your credit report. If as you state the date of first delinquency on this account was in 2000, then this should have been removed from your credit report sometime in 2007. Unscrupulous collection agents will report a false date on an account in an attempt to make the derogatory account reappear on a credit report. They do this in an attempt to gain leverage over the consumer in settlement negotiations. Reporting an incorrect date of first delinquency is illegal, but unfortunately for consumers the FCRA offers light penalties for law breakers who do so.

Statute of Limitations

A statute of limitations (SOL) is the time period during which a creditor can take legal action (i.e., sue the debtor) to enforce a debt. Each state has defined its own statutes of limitations, and they vary significantly. In most states, a creditor may also take legal action after a statute of limitations expires. When this occurs, a defendant may use the statute of limitations as an affirmative defense.

You mentioned you reside in Texas. Under Texas law, the statute of limitations is governed by Title 2, Subtitle B, Chapter 16 on an open account (i.e., credit card) is four years. (See the Bills.com resource Statute of Limitations Laws by State if you reside in another state.)

If a state's SOL for the collection of debts has expired, the likelihood of the creditor attempting to sue the debtor to enforce the debt is much less. While the passing of the SOL does not mean that a creditor cannot file a lawsuit, if one is filed the debtor has an absolute defense against the lawsuit. If the debtor responds to the suit stating that the SOL has expired, the judge should dismiss the case. In addition, if the court believes that the creditor filed suit despite knowing that the SOL had expired, the court may sanction the creditor for its actions.

In most states, the SOL begins running from the date of last payment on the account. This means that if the debtor paid just a few dollars to a collector a couple of years ago, the running SOL for that debt could have been reset. Also, keep in mind that the passage of the SOL does not forbid a creditor from calling to collect on the debt -- it simply provides an absolute defense in court if the creditor files suit.

Debt Validation

If a collection agent demands payment of a debt an individual does not owe, or more than they owe, under federal law the consumer can dispute the debt in writing. The formal terms for this process are "debt verification" or "debt validation."

A debtor should, as a matter of course, validate a debt when a collection agent attempts to collect the debt. Why? Just because a voice on the telephone claims that a debtor owes the collection agent money does not necessarily mean the collection agent owns the right to collect the debt, or that the debt is even owed.

Under the FCRA, if a creditor cannot verify a debt it may not collect the debt, contact the debtor about the debt, or report it to the credit reporting agencies. See the Bills.com resource Debt Validation to learn how to validate debt, and determine if a debt is validated properly.

Recommendation

If the collection agent attempts to collect the debt from you, validate the debt immediately.

Let us assume for the sake of argument the collection agent validates the debt properly. Because the statute of limitations has long passed, it is unlikely (though possible as discussed above) that a smart collection agent will file a lawsuit to collect the debt. If, however, your collection account is owned by a not-so-smart collection agent that does file suit, you have a statute of limitations defense available to you.

Most states allow creditors to charge reasonable interest charges and fees. Here, I doubt any judge would agree that almost $4,000 in fees and interest for a 10-year-old $35 late fee is reasonable. In fact, it is ridiculous and would be comical if it were not true.

Collection agents buy, sell, and trade collection accounts for pennies on the dollar. If a collection agent calls you and the debt is validated, explain the debt has long since passed the Texas statute of limitations so you know you cannot be sued in a Texas court for collections. State that $4,000 in fees and interest on a $35 debt is unreasonable and unconscionable, and that you know debt is bought and sold for pennies on the dollar. Offer to settle the debt for $40. If the negotiations go higher than $80 tell the collection agent he or she is being unreasonable and you would love to argue the matter in front of a judge.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com