New Regulations on Debt Collection in New York
Many consumers are aware that the Fair Debt Collection Practices Act governs
the permissible conduct of debt collectors. What many people don’t
know if that certain localities provide consumer protections beyond the
Federal laws. For example, agents attempting to collect debt from consumers
in New York City are regulated by the Department of Consumer Affairs (DCA)
and Local Law No. 15.
This past December saw New Yorkers protections grow even further. The
New York State Department of Financial Services passed new legislation
that expanded on previously existing FDCPA protections. These new rules
require specific disclosures and written communication requirements.
One of the most significant changes made by these new regulations is with
respect to required disclosures when collecting on a consumer debt from
someone residing in NYC. Under these new regulations, debt collectors
must provide to the debtor a disclaimer if there is a possibility that
the debt is past the applicable
statute of limitations to maintain a lawsuit.
If a debt is past the applicable statute of limitations (aka “Zombie
Debt”), the debtor would be able to assert it as a defense to a
lawsuit and may be able to have the action dismissed on the basis. However,
if a debtor were to make a payment on a debt that has already passed the
SOL, the payment may cause the SOL to be extended.
Collection agencies have used this to their advantage by contacting debtors
with debts beyond the SOL in an effort to have the debtor agree to making
a payment, for the main purpose of extending the Statute of Limitations.
Through the implementation of the disclosure regulations, the New York
Department of Financial Services hopes to protect debtors from paying
debts without first having notice that the debt may be beyond the applicable
Statute of Limitations to maintain a lawsuit for breach of contract.
Beyond this there have been new regulations with regards to collection
and account specific disclosures. These new rules require that once a
debt collector makes first contact with a debtor, they must issue the
debtor with a written disclosure that informs them of all restricted debt
collection practices outlined in the
Fair Debt Collection Practices Act, as well as a list of funds that are
exempt from collection.
Under the new regulations, collectors must also provide the debtor with
the specific information such as the name of the original debtor, the
name of the current creditor, and the balance. The mandatory disclosure
of such information is intended to reduce confusion by the recipient as
to whether the debt is being collected by the original creditor, or a
debt buyer. The new disclosure rules are in effect in New York as of March
In addition to the new disclosure requirements, new rules were made with
Debt Validation requirements. For example, if a consumer disputes a debt, the collector
must inform the debtor how to place a written request for substantiation.
Beyond this a collector must then additionally send the the debtor that
same information within 14 days in writing. If a Debtor elects to go forward
with the debt dispute and send out a written request for substantiation
, the debt collector must cease collection efforts for 60 days upon receiving
the request. Over the course of the 60 days the collector must compile
information to substantiate the debt, such as: copy of a court judgement,
a copy of the original signed contract, the account of the initial statement
from the original creditor, the chain of title of the debt, as well as
records of previous settlement offers.
Another regulation update pertains to email communication. The rule allows
debtors the option of communicating with debt collectors through a personal
email address (work email is strictly prohibited). Once a debtor voluntarily
chooses to use a personal email for communication with the collector,
they will have the ability to authorize further email communication by
consenting through an electronic signature. This rule is designed to protect
debtors from being unnecessarily contacted through yet another communication
medium. It also prevents any accidental communication with a wrong email
that could potentially cause a debtor embarrassment.
It’s important for consumer debtors residing in New York City to
know that they have the benefit of protections under both the Federal
laws and the local regulations. However, as opposed to the statutory award
available for violations to the FDCPA, the NYC local regulations do not
provide for a private right of action against the offending party. The
Department of Consumer Affairs, or other official department, would have
the authority to take appropriate action against the offeding collection
agency. All collection agencies operating in NYC are required to be licensed
by the NYC DCA, and are required to abide by their regulations.
Now, more than ever before, creditors, debt collectors, and debt buyers
must be diligent to train their agents to be aware of the various consumer
protection regulations in order to ensure compliance.