Capital One dredges up decade-old, charged-off debt

Frank Cavestani and his wife fell behind on their Capital One credit card payments about a decade ago. Their accounts were subsequently closed by the lender, which wrote off about $2,000 in debt they couldn’t pay.

So it was more than a little strange when the Hollywood couple received a pair of bills from Cap One the other day for a combined $5,195.07 in debt and interest.

Stranger still, when Cavestani contacted Cap One, he said a service rep told him the resurrecting of old loans is accommodated by recent credit card regulations approved by the Federal Reserve — even though most states have a statute of limitations for how long credit card debt can be pursued by a lender.

In California’s case, that statute of limitations is four years. Cavestani’s debt dates back to 2000, which means Cap One can’t sue him for failing to pay up.

“I thought at first this must be some sort of fraud,” Cavestani, 58, told me. “I didn’t see how Cap One could be saying I still owed them money.”

Cavestani’s situation serves as a warning to other consumers who might think they’re free and clear of a debt but who suddenly find the ghosts of lenders past knocking at their door. It’s important to know your rights.

Cap One spokeswoman Tatiana Stead essentially confirmed Cavestani’s story.

She said Cap One was complying with Section 226.5(b)(2) of the Federal Reserve’s Regulation Z, which requires lenders to send a statement for each billing cycle. But it stipulates that “a periodic statement need not be sent for an account if the creditor deems it uncollectable, or if delinquency collection proceedings have been instituted.”

The regulation requires Cap One to send out statements for charged-off accounts, “regardless of whether we are still actively seeking to recover on the debt,” Stead said.

You’d think a debt that’s already been charged off by a lender sits squarely in the uncollectable pile. A charge-off, or write-off, basically means a lender is chalking up a nonpaying loan as a loss and moving it off its accounting books.

In any case, a credit card debt that surpasses a state’s statute of limitations is, by definition, uncollectable. While the debt may still be valid, a lender can’t sue to collect after the statute of limitations has passed.

What seems to be happening here is that Cap One is attempting to comply with a revision of the notification rule passed by the Fed last year. Card issuers are now required to send out statements for charged-off accounts if the issuer is still charging interest or fees for the account.

Cap One is apparently digging deep into its loan portfolio and ensuring that former customers remain on the hook, even if the company has no intention of actually going after the money.

Why? The only reason I can think of is that it may want to sell the old loans to a debt collector and then let the collector take a shot at squeezing some cash from consumers.

Good luck with that. Without the ability to sue, all a debt collector can do is ask, pretty please, for some money.

Or it can try to trick the unwary into thinking they have to make a payment, which is also what Cap One may be doing.

I spoke with a number of government officials in trying to get the lay of the land on this one. They all declined to comment on the record because they didn’t know all the facts of the case. But each said it appeared that Cap One may be misleading consumers into thinking that money had to be paid when it didn’t really.

The bills received by the Cavestanis clearly say “payment due” for each account and that the cash is “past due.”

Cavestani said there’s nothing ambiguous about this. “It means you have to pay them some money,” he said.

Yet neither he nor his wife had received any other communication from Cap One for the 10 years since their accounts were closed — no bills, no notices, nothing.

Last year, Cavestani made a deliberate effort to pay off all outstanding debts by taking out a loan from a credit union and working with a counselor to get his finances in order. He hoped to rebuild his credit for an eventual home purchase.

Cavestani said he and the counselor went over his credit file line by line. There was nothing outstanding for Cap One.

In any case, while Cavestani acknowledged that financial difficulties caused him to miss months of payments a decade ago, he’s not trying to be a deadbeat.

“If they want me to pay the original amount, I would do that,” he said. “But they charged off the account and stopped sending me bills. I don’t think I should now have to pay all that interest.”

Cavestani wonders how many other people may also be receiving payment-due notices for loans they thought had been forgiven. “I’m sure this isn’t happening only to me,” he said.

If you get such a notice for any loan older than four years (that’s for California; it may be different in other states), call the lender and explain how things really stand. Maybe it’ll go away, maybe it won’t.

But just because they say you have to cough up some money, that doesn’t necessarily make it so.

David Lazarus’ column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5. Send your tips or feedback to david.lazarus@latimes.com