The New York Department of Financial Services recently released new regulations that will better protect New Yorkers from the debt collection industry’s rampant abuses. Once the majority of the regulations go into effect on March 3, 2015 (a few of the regulations will begin in August), New York will have some of the strongest laws in the country when it comes to debt collection.
The Scope of the Problem: Debt Collectors Gone Wild
According to Governor Cuomo, in 2014 New York consumers filed more than 20,000 complaints about debt collection practices. Common complaints include harassment, aggressive collection tactics, and trying to collect the wrong amount or from the wrong person.
Many of those complaints were levelled against debt buyers – companies that buy old debts for pennies on the dollar and then try to collect them. Debt buyers often do little to verify that the debt is in fact owed. As a result, debt buyers often try to collect debts that have already been paid or settled or for which the time period to sue has passed. Debt buyers rarely give consumers any information about the debt – so consumers don’t know when it was allegedly incurred, who the original creditor was, how much the original debt was, and so on. (Learn more about how debt buyers operate.)
The complaints in New York complaints mirror those in the rest of the country; the problem abusive and unfair tactics in debt collection is widespread. The federal Consumer Financial Protection Bureau has taken notice and is attacking the problem in its own way. But it’s particularly heartening to see a state such as New York take the bull by the horns and promulgate such tough regulations. Let’s hope other states follow suit.
The New York Debt Collection Regulations
Here’s a summary of a few of the most important new rules that will soon govern debt collectors in New York.
Within five days of first contacting a consumer about a debt, a debt collector or debt buyer must provide the consumer with general information about his or her rights as well as actions the collector cannot take when collecting the debt.
The collector or debt buyer must also give the consumer information about the debt including: the name of the original creditor and an itemized accounting of the debt.
And finally (and this is a big one) if the debt collector knows or has reason to know that that statute of limitations (the time period in which the collector must bring a lawsuit to enforce the debt) may have expired, it must tell the consumer this, along with what this means if the collector sues or the consumer makes a payment anyway.
Substantiation of Debts
If the consumer disputes that he or she owes the debt, the debt collector must provide information on how to request “substantiation” of the debt. Once the consumer requests substantiation, the collector must then provide documents and statements about the debt, such as the judgment, original contract, the charge-off statement, a description of the chain of title from the original creditor to the present owner of the debt, and records of payments and settlements.
The collector must stop collection efforts until it provide substantiation.
Will the debt buyer industry have to change? Because debt buyers often don’t have information about the debts they collect (remember, they often buy them in bulk), it will be interesting to see how they deal with this new regulation. The law makes clear that the collector cannot resume collection until it provides the required documents and statements. It follows that debt buyers will probably be barred from collecting some of the debts in their portfolios. Does this mean debt buyers start looking more closely at the debts they buy and demand better records and information from the sellers? Let’s hope so. Although any such change will probably occur only after a number of debt buyers get slapped by NY prosecutors for violating the regulations.
Written Confirmation of Payment or Settlement
If the collector and consumer agree upon a debt payment schedule, the collector must confirm this in writing. Written confirmation is also required once the consumer pays off the debt.
The debt collector may correspond through email if the consumer consents. This may be a good option for consumers that want to keep track of the debt and the status of collection but don’t want to receive annoying or harassing telephone calls.
Governor Cuomo’s press release characterized this provision as the consumer’s “right” to receive email communications. But the language of the statute says the collector “may” use email, which seems to indicate that the collector can choose not to use email.
Getting More Information
For more detailed information about the regulations, see Nolo’s article New York Laws Regulating Debt Collectors and Debt Buyers. You can also find the full text of the regulations here.