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Debt collection is hard enough in general, but what can you do when your recovery efforts take you to non-contiguous territories of the United States, like Puerto Rico?
The first thing to keep in mind is that the FDCPA applies there just like anywhere else. The CFPB has the authority to stretch its long arm as far as the most remote corner of the United States and its territories in order to supervise and audit local banks, credit unions, payday lenders, debt collection agencies, and more.
This also means that conventional and litigious collection efforts also work in Puerto Rico much like in the rest of the U.S. Skip tracing, employment and asset tracking, locating real and personal property, investigating liens, judgments, and corporate filings with the local Secretary of State, are but a few of the methods used to recover your receivables.
The FCRA-mandated credit reporting period is the same in Puerto Rico: 7 years for debt, and 10 years for bankruptcies, but note that Puerto Rico has its own statute of limitations for filing lawsuits to collect debts: 15 years. The island also specifies prohibited practices for collection agencies on top of and more restrictive than those in the FDCPA, such as this one:
…No collection agency shall: (1) Carry out actions for collection for in relation to accounts, bills or debts for which it has not been previously authorized in writing by the client. (P.R. Laws tit. 10, § 981p)
Puerto Rico is one of the states that regulate the collection of fees and interest. No collection agency is allowed to add collection fees onto the debtor’s outstanding balance even when the agency incurred those charges while doing business related to that debtor (10 P.R. Laws Ann. § 981p (12)). All that being said, in Puerto Rico interest is allowed on money judgments, at a rate of 6%.
While the rules and regulations governing debt collection in Puerto Rico are familiar, with only a few exceptions, Covid 19 has presented a special set of problems for regulators, creditors and debtors alike. The unemployment rate on the island skyrocketed last year, and it was already high before the pandemic, with 36.2% of the inhabitants unemployed. After the pandemic started, that number more than doubled.
The state’s payment delinquency rate continues to be higher than on the mainland and, in fact, is among the highest across the entire United States. It didn’t recover as quickly and significantly as it did after the 2008 crisis, nor as much as other U.S. territories did, and the damage caused by Hurricane Irma and then Hurricane Maria in 2017 was estimated at more than $90 billion.
One of the challenges faced by creditors may be not just that debtors are unwilling and unable to pay but that, long-term, they simply can’t keep up with the payments. While this is not a rare occurrence in this industry, the problem with Puerto Rico’s debtors, just like those in other hard-hit territories of the U.S., is that they probably have little to no resources available to mitigate the default. If they stop making payments as part of long-term payment arrangements and then the creditor pursues a wage garnishment, then it’s still possible the wages may not even be high enough to garnish. It’s reasonable to assume that many families would apply for garnishment exemptions, leaving creditors with millions of dollars in uncollectable receivables until the overall financial situation of the island’s inhabitants improves enough that there’s finally something to collect.