Just in time for Halloween, one element of a recent settlement between American Express and the Consumer Financial Protection Bureau deals with compensation for an abuse known as "zombie debt." The term refers to a lenders' abusive practices in attempting to collect debt that is too old to be enforced. Usually that stale debt has been bundled and sold to down-stream debt collectors for a few cents on the dollar. At some point, the time runs out on the bank's right to collect the debt, so it expires. However abusive debt collectors try to "revive" the expired debt (hence the term "zombie") by talking the borrower or co-signor into making payments. Sometimes this is done under threats of credit damage or even false criminal charges.
A few weeks ago, the CFPB, which was set up when Congress passed the Dodd-Frank Act, announced a settlement with American Express and its affiliates, which remedied many deceptive practices alleged in connection with the company's credit card business. You can read the press release here
Among other aspects of the $85 million settlement, the agency reports that "Consumers who paid old debt in response to deceptive promises to report payment to credit bureaus will be reimbursed the money they paid plus interest."
It is not just credit card companies that use aggressive, and sometimes illegal, tactics to collect debt that is no longer due. Unlawful attempts to collect "zombie debt" are common in automotive lending as well, sometimes regarding a deficiency after a repossession that took place many years ago. The person demanding money may not even be the original lender. Before giving a check to a stranger, the borrower should get legal advice. "Zombie debt" may not be the apocalypse, but it can be a real nightmare.