New York Laws Regulating Debt Collectors and Debt Buyers

New regulations in New York provide greater protection to consumers from debt collection abuses.

As of March 3, 2015, New York will provide some of the strongest protections in the country against debt collection and debt buyer abuses. In early 2015 the New York Department of Financial Services enacted regulations that govern the debt collection industry in New York. The regulations will help combat the collection of “zombie debts,” provide consumers with more information about the debts being collected, and allow consumers to consent to email communications rather than phone calls.

Regulations Apply to Debt Collectors and Debt Buyers

The New York regulations specifically state that debt buyers are included in the definition of debt collectors. This means that the new rules will apply to debt buyers – companies that buy old debts in bulk for pennies on the dollar and then try to collect the debts.

The debt buyer industry is notorious for having little to no information about the debts it collects. Debt buyers often try to collect debts that have already been paid or settled (called “zombie” debts because they don’t go away) or for which the statute of limitations (the time period in which the debt buyer must sue the consumer) has long passed. By wrapping the debt buyers into the new law, New York hopes to combat some of these abuses and provide consumers with more information about the debts which are being pursued. (Learn more about debt buyers and defenses to debt buyer lawsuits.)

The regulations do not apply to original creditors collecting their own debts, nor to the collection of business debts.

New York Regulations

Below are some of the key features of New York’s new debt collection regulations. (Keep in mind that the term “debt collector” also refers to debt buyers.)

Initial Disclosures That Provide More Information to Consumers

Upon the debt collector’s initial communication with the consumer, or within five days after, the collector must provide the following information:

General information about consumer rights. The collector must provide a list of the collection activities prohibited by the federal Fair Debt Collection Practices Act (FDCPA). (Learn more about debt collection practices prohibited by the FDCPA.) It must also list the types of income that is protected from collection if the collector ends up getting a judgment against the debtor. So, for example, if an elderly woman receives only Social Security income, she will know that even if the collector sues her and gets a judgment, her income is safe. Information such as this may alleviate stress and help consumers decide how to deal with the debt. (Some consumers may decide that nonpayment is the best option.)

Information about the debt. The collector must provide the consumer with the identity of the original creditor and an itemized accounting of the debt, including:

  • the amount of the debt when the original creditor charged it off and sent it to collection
  • the amount of interest accrued since charge-off
  • the amount of other fees and charges, and
  • the payments the consumer has made since charge-off.

 Because many debts (especially those in the hands of debt buyers) are extremely old, consumers often have no idea what the original debt was for. This new requirement will give them information about the debt in issue.  And it may prevent some debt buyers from collecting the debt. If they don’t have this information, they won’t be able to comply with the regulations and cannot legally resume collection of the debt.

Disclosure of expired statute of limitations. Under the new regulations, debt collectors must have procedures to determine the statute of limitations on debts they are collecting. The statute of limitations is the legal time limit in which the collector can sue to enforce collection of the debt.

If the collector knows, or has reason to know, that the statute of limitations may have passed, it must do the following before collecting the debt:

  • inform the consumer that it believes the statute of limitations may have expired
  • inform the consumer that suing to collect a debt for which the statute of limitations has expired violates the federal Fair Debt Collection Practices Act (trying to collect such a debt, however, without resort to filing a lawsuit, is not a violation)
  • inform the consumer that he or she does not have to admit to owing the debt, promise to pay the debt, or waive the statute of limitations, and
  • inform the consumer that if he or she does admit, acknowledge, or promise to pay the debt, the consumer may restart the statute of limitations (which means the collector can then sue the consumer on the debt).

Provide Substantiation of the Debt

If the consumer disputes the validity of the debt (orally or in writing), the collector must provide the consumer with information on how to request substantiation of the debt. If the consumer does request substantiation, the debt collector has 60 days to provide substantiation of the debt. It must stop all collection efforts until it provides the required documents and statements.

Substantiation means that the collector must provide either a copy of a judgment or all of the following:

  • The signed contract or application for the debt. If that’s not available, then a document created while the account was active demonstrating that the consumer owed the debt (a document created after charge-off does not count). For revolving accounts (like credit cards), the collector may produce the most recent monthly statement recording a purchase, payment, or balance transfer.
  • The charge-off account statement that the original creditor sent to the consumer.
  • A statement describing the chain of title from the original creditor to the current debt owner.
  • Records that document any previous settlements on the debt.

Written Confirmation of Payment or Settlement

If the debt collector agrees to a payment schedule or another agreement to settle the amount owed, it must provide to the consumer (within five days) written confirmation of the agreement. The collector must also provide a quarterly accounting of the debt while the consumer makes payments.

If the consumer pays off the debt, the debt collector has 20 days to provide written confirmation of the satisfaction of the debt.

Email Option

If the consumer consents, the debt collector may communicate with the consumer via email.

Effective Date of the New Regulations

The provisions regarding substantiation and providing information about the specific debt in its initial communications go into effect in August 2015. The longer timeline is intended to give the debt collectors time to revamp their internal procedures. The rest of the regulations go into effect on March 3, 2015.

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