By: Robert J. Nahoum
New York State recently enacted new debt collection laws designed to protect consumers. The new rules address a number of known abuses and lack of information provided to consumers.
WHO IS COVERED?
Under the new rules “any person engaged in a business the principal purpose of which is the collection of debts,” or “any persons who regularly engage in collecting, either directly or indirectly, debts owed to another” is covered. The rules also expressly include “a buyer of debt”.
This definition includes all those located in New York or engaged in the collection of debts in New York. Exemptions are similar to those found in the federal debt collection law known as the Fair Debt Collection Practices Act (FDCPA) including enforcement officers, process servers serving court papers and original creditors and their employees collecting the creditor’s debts in the creditor’s name.
WHAT IS COVERED?
The new laws cover not only the collection of consumer debts but also “alleged obligations” for the payment of “money or its equivalent” where credit has been extended to a consumer for money, property or a service. Consumer debts are similar to the FDCPA definition which covers credit extended “primarily for personal, family or household purposes.”
Upon the debt collector’s initial communication with the consumer or within five days after, the debt collector must, in addition to the disclosure requirements under the FDCPA, provide, in writing, the following information:
- That the FDCPA prohibits the debt collector from engaging in abusive, deceptive and unfair practices, “including, but not limited to (i) the use or threat of violence; (ii) the use of obscene or profane language; and (iii) repeated phone calls made with the intent to annoy, abuse, or harass.”
- A notice (originally called the “Notice to Judgment Debtor or Obligor”) listing the types of income that is protected from levy if the debt collector is awarded a money judgment against the debtor in court. The notice states that:
If a creditor or debt collector receives a money judgment against you in court, state and federal laws may prevent the following types of income from being taken to pay the debt:
Supplemental security income, (SSI);
Public assistance (welfare);
Spousal support, maintenance (alimony) or child support;
Workers’ compensation benefits;
Public or private pensions;
Federal student loans, federal student grants, and federal work study funds; and
Ninety percent of your wages or salary earned in the last sixty days.
If the debt the debt collector is attempting to collect has been charged off (an “accounting action taken by an original creditor to remove a debt obligation from its financial statements by treating it as a loss or expense”), the following additional disclosures must be given:
- The name of the original creditor; and
- An itemized accounting of the debt including (a) the total amount of the debt due as of charge-off; (b) the total amount of interest accrued since charge-off; (c) the total amount of non-interest charges or fees accrued since charge-off; and (d) the total amount of payments made on the debt since charge-off.
Charged off debts are often the debts being collected by debt buyers as they were charged off by the original creditor before being sold.
Time Barred Debts
If the debt collector knows, or has reason to know, that enforcement of the debt is barred by the statute of limitations, it must make the following disclosures 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 the FDCPA;
- 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.
The disclosures must explicitly state that:
“We are required by regulation of the New York State Department of Financial Services to notify you of the following information. This information is NOT legal advice:
Your creditor or debt collector believes that the legal time limit (statute of limitations) for suing you to collect this debt may have expired. It is a violation of the Fair Debt Collection Practices Act, 15 U.S.C. §1692 et seq., to sue to collect on a debt for which the statute of limitations has expired. However, if the creditor sues you to collect on this debt, you may be able to prevent the creditor from obtaining a judgment against you. To do so, you must tell the court that the statute of limitations has expired. Even if the statute of limitations has expired, you may choose to make payments on the debt. However, be aware: if you make a payment on the debt, admit to owing the debt, promise to pay the debt, or waive the statute of limitations on the debt, the time period in which the debt is enforceable in court may start again. If you would like to learn more about your legal rights and options, you can consult an attorney or a legal assistance or legal aid organization.”
In addition to the statue of limitations disclosures, debt collectors must have procedures in place to determine the statute of limitations on debts they are collecting and to allow them to determine whether the applicable limitations period has expired.
Substantiation of the Debt
If the consumer disputes the validity of a charged off debt (whether orally or in writing), the debt 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.
Substantiation under the new rules goes beyond what satisfies the “verification” request under the FDCPA and includes:
- A copy of a judgment, or
- (a) “the signed contract or application that created the debt” or, if neither “exists” (b) a copy of a document which demonstrates the debt was incurred by the “debtor” and only if this document was provided to the “alleged debtor” while the account was “active,” or (c) for a “revolving credit account” the “most recent monthly account statement recording a purchase transaction, payment or balance transfer…;”
- “the charge-off account statement” or its equivalent, “issued by the original creditor to the consumer;”
- “a statement describing the complete chain of title from the original creditor to the present creditor, including the date of each assignment, sale, and transfer; and”
- records that “reflect the amount and date of any prior settlement”.
Substantiation can be requested at any time. During the 60 day substantiation period, all debt collection efforts must stop until such time as the required documents and information have been provided.
If a consumer makes an oral dispute of the debt, the debt collector must take “reasonable efforts” to inform the consumer how to make a written request for substantiation within 14 days of the verbal dispute. The debt collector must “provide the consumer clear and conspicuous written instructions on how to request substantiation of the debt.”
If a consumer makes a written dispute of the debt, “within 21 days of the debt collector receiving that writing, the debt collector must provide the consumer clear and conspicuous written instructions on how to request substantiation of the debt.”
Written Confirmation of Payment or Settlement
If the debt collector agrees to a payment plan or other agreement to settle the amount owed, the debt collector must, within five days, provide the consumer with written confirmation of the agreement. The debt 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.
Under the new laws, debt collectors are allowed to email consumers only if (a) the consumer has voluntarily “provided an electronic mail account to the debt collector” (b) the consumer has “affirmed” that the email “account” is neither “furnished or owned by the consumer’s employer”; and (c) the consumer has “consented in writing” to receive email “in reference to a specific debt.”
Penalties for Non-Compliance
The new regulations do not have a private right of action meaning that an aggrieved consumer cannot sue the debt collector directly for the debt collector’s non-compliance. However, a debt collector’s non-compliance may give rise to a claim under the FDCPA.
If you need help settling or defending a debt collection lawsuit, stopping harassing debt collectors or suing a debt collector, contact us today to see what we can do for you.
The Law Offices of Robert J. Nahoum, P.C