By: Robert J. Nahoum
As part of the roll out of the new New York debt collection laws, the New York Department of Financial Services has issued guidance through a â€œFrequently Asked Questionsâ€ page on its website.Â The FAQs clarifies the extent of the regulations and debt collectorsâ€™ responsibilities.
The FAQ states that:
â€œDoes 23 NYCRR 1 apply to the collection of debts by original creditors?Â
No. However, the regulation does apply to third party debt collectors collecting on behalf of original creditors to the extent another exception in the rule is not applicable.
Is a debt originated by a seller of a good or service sold directly to the consumer subject to 23 NYCRR 1?
23 NYCRR 1 does not apply to any debt originated out of a transaction wherein credit has been provided by a seller of goods or services directly to a consumer exclusively for the purpose of enabling the consumer to purchase consumer goods or services directly from the seller. This exception could include the extension of credit for medical services, the purchase of an automobile, or a retail installment contract if the credit is extended by the seller for specific goods or services. The debt remains exempt from 23 NYCRR 1 even if it is sold to a new creditor or given to a third-party debt collector. Note, however, that state and federal fair debt collection practices acts, which are enforceable by the Department, may still apply to these debts.
Does 23 NYCRR 1 apply to debts that have not been charged-off?
Some sections of 23 NYCRR 1 apply only to debts that have been charged-off, and others apply to any debt. For example, 23 NYCRR 1.2(a) requires certain initial disclosures in connection with collection of all debts, and 23 NYCRR 1.2(b) requires certain disclosures only with respect to the collection of charged-off debts.
Does 23 NYCRR 1 apply to debt servicers, including companies that service student loans, home equity loans or mortgages?
Much of the definition of debt collector in 23 NYCRR 1 parallels the federal Fair Debt Collection Practices Act, 15 U.S.C. 1601 et seq., and debt collectors should look to applicability of that law for guidance on who is considered a â€œdebt collectorâ€ for purposes of the regulation. Debt servicers who collect or attempt to collect a debt that was not in default at the time it was obtained for collection are not considered debt collectors for the purposes of 23 NYCRR 1, and are not subject to the regulation. Debt servicers who are assigned defaulted debts to collect on behalf of creditors are subject to the rule unless a different exemption applies.
While debt servicers who are assigned defaulted debts may be subject to 23 NYCRR 1, certain sections of the regulation do not apply to all types of debts, particularly types of debts that servicers may collect on. For example, Sections 2(b) and 4 pertain only to the collection of charged-off debts, which typically is not germane to the collection of mortgage debt but could be germane to the collection of student loan debt.
Does 23 NYCRR 1 apply to New York based debt collectors collecting debts from persons who reside outside of New York?
At this time, the Department is focused on collection of debts owed or alleged to be owed by New Yorkers, which is the intended scope of the rule.
By limiting the requirement in 23 NYCRR 1.5 to payment arrangements reached â€œpursuant to Section 1.5 of this Partâ€ does this section only require debt collectors to provide written confirmation of payment arrangements entered into after the enactment of the DFS rules?
Do debt collectors need to provide a full copy of the original payment agreement and copies of all payment statements in order to comply with the requirements of 23 NYCRR 1.4(c)(4)?
No. The rule requires â€œrecords reflecting the amount and date of any prior settlement agreement,â€ not original documents or each account statement.
What happens if the debt collector cannot substantiate the debt within 60 days but does so thereafter?
A debt collector cannot collect a debt until substantiation is provided. Once substantiation is furnished, a debt collector may begin collecting, even if substantiation is provided after the required 60-day period. While the debt collector may continue collecting, note that failure to provide the required information within 60 days of receipt of the request for substantiation is a violation of the rule separately enforceable by the Department.
Would providing consumers a monthly account statement fulfill the requirements of 23 NYCRR 1.5(b)?
Yes. Debt collectors must provide an accounting of the debt on â€œat least a quarterly basis while the consumer is making scheduled paymentsâ€ on a payment plan. A monthly accounting would meet this requirement.
After a legal action has commenced, does a collection attorney need to comply with rules such as 23 NYCRR 1.5(b), which requires sending quarterly statements during scheduled payments?
The requirements in 23 NYCRR 1 do not apply to â€œany person with respect to (i) serving, filing, or conveying formal legal pleadings, discovery requests, judgments or other documents pursuant to the applicable rules of civil procedure; (ii) communicating in, or at the direction of, a court of law or in depositions or settlement conferences or other communications in connection with a pending legal action to collect a debt on behalf of a client; or (iii) collecting on or enforcing a money judgment.â€ If a settlement is reached with a collection attorney to resolve a pending legal action to collect a debt, 23 NYCRR 1 would not apply to the settlement.
Does 23 NYCRR 1 apply to collection of a money judgment?
No. While other debt collection laws and regulations may apply to the collection of money judgments, 23 NYCRR 1 does not apply when debt collectors are collecting on a money judgment.
The Department and the New York City Department of Consumer Affairs (â€œNYCDCAâ€) both require disclosures concerning the statute of limitations. However, the notices differ in some respects. If the debt collector is subject to the NYCDCA rules, are both disclosures required?
23 NYCRR 1.3 requires debt collectors to provide certain information about the statute of limitations. Debt collectors can provide a single disclosure by using language required by the NYCDCA and including any additional information required in 23 NYCRR 1.3 that is not covered by the NYCDCA language. This additional information would include that: suing on a debt for which the statute of limitations has expired is a violation of the Fair Debt Collection Practices Act, 15 U.S.C. Â§ 1692 et seq.; and that if the consumer admits, affirms, acknowledges, or promises to pay a debt for which the statute of limitations has expired, the statute of limitations may restart.
The Department and the NYCDCA rules both specify information to be sent to a consumer within five days of the initial communication with a consumer in connection with the collection of any debt. If the debt collector is subject to the NYCDCA rules, are both disclosures required when collecting a debt?
The information required by the two rules differs in some respects, but does not conflict. If a debt collector is subject to both rules, the information required by the Department and the NYCDCA rules can be provided in one combined initial disclosure.
If the debt collector provides the notice required in 23 NYCRR 1.3 before accepting payment on a debt where the statute of limitations has expired, must the debt collector provide this notice in every subsequent communication or before accepting every subsequent payment?
A debt collector only needs to provide the disclosure required in 23 NYCRR 1.3 before accepting any payment on a debt in which the statute of limitation is expired, but not in every non-collection communication. Disclosure can be provided in the communication requesting a payment or before accepting a payment. If the statute of limitations has not restarted following acceptance of a payment, then the disclosures must be made again before accepting further payment.
If a debt collector treats a dispute, either oral or written, as a request for substantiation, must the debt collector inform the consumer of the method by which the consumer may request substantiation?
No. If a debt collector is treating a dispute as a request for substantiation and stops collection, the debt collector does not need to provide the consumer instructions on how to request substantiation.
If a debt collector has provided a consumer with substantiation of an alleged debt, does the debt collector need to provide information about how to request substantiation after any subsequent disputes about the debt?
No. Once a debt collector has provided substantiation of the debt, the debt collector does not need to provide any further information about how to request substantiation of the debt. If a new debt collector obtains the debt, the new debt collector must provide and/or offer substantiation of the debt again.â€
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