On May 20th, Vermont Gov. Phil Scott signed into law HB 385 related to coerced debt. While the major provisions of the law do not take effect until July 1, 2028, it will apply to all coerced debt, including that which exists prior to its adoption.
The new statutory provisions establish rights, remedies, and procedures for coerced debt claims and impose specific operational duties on creditors, debt buyers, and debt collectors. RMAI actively lobbied this bill with the Vermont legislature, including by retaining a lobbyist and collaborating with the Vermont Bankers Association in various testimonies before multiple legislative committees. These efforts secured significant amendments.
Coerced debt is limited to debt resulting from “domestic abuse, human trafficking, or the abuse, neglect, or exploitation of a vulnerable adult.” The debt can be one that was created without the debtor’s consent or, if the debtor did consent, the debt was incurred by “use or threat of force, intimidation, undue influence, fraud, deception, coercion, or other similar means.”
Persons who claim to be a victim of coerced debt can trigger the protections afforded by the new law by sending a creditor or debt collector a sworn statement, containing the information outlined in the new law and “adequate documentation.” Adequate documentation means “(A) a copy of a report filed with a federal, state, or local law enforcement agency that identifies the coerced debt and the circumstances under which the coerced debt was incurred, the filing of which subjects the person filing the report to criminal penalties for filing false information if, in fact, the information in the report is false; (B) a court order finding that the debt was coerced; or (C) a sworn certification from a qualified third-party professional regarding the debtor’s claim of coerced debt.”
Upon receipt of a sworn statement and the required documentation, creditors and debt collectors must cease collection activity, investigate the claim, and comply with reporting and consumer communication requirements. The law provides specific time periods within which actions must be completed, and disclosures that must be made. Consumer reporting agencies must reinvestigate and delete tradelines determined to be coerced debt.
A violation of the law is deemed an unfair and deceptive act in trade and commerce. The Attorney General has the authority to make rules, conduct civil investigations, enter into assurances of discontinuance, and bring civil actions.
Vermont becomes the 10th state to adopt coerced debt legislation, following California, Connecticut, Illinois, Kentucky, Maine, Minnesota, Nevada, New York, and Texas.
Even though the effective date is in two years, RMAI encourages its members to implement policies, workflows, training, and vendor controls to ensure compliance well in advance of the effective date given that it applies to coerced debt pre-dating the effective date.
RMAI recommends that its members share this Member Alert with those in their organization who are responsible for their operations, compliance, and legal matters.
This Member Alert is intended for members of the Receivables Management Association International, is for informational purposes only, and is in no way intended to provide legal advice. Members are encouraged to consult with an attorney of their choice for legal advice concerning this matter.