New York Proposes Tough New Debt Collection Rules

New York State’s Department of Financial Services (DFS) Thursday announced a set of proposed regulations that it said are a “set of nation-leading reforms to help protect consumers against abusive and deceptive debt collection practices.” While the new regulations do impose many new requirements on ARM companies operating in the state, they also pave the way for authorized email communications with consumers.

The DFS said that the proposed regulations would cut down on repeated, harassing phone calls from debt collectors; guard against the collection of time-barred debt; prevent situations where companies try to collect debts from the wrong consumer for the wrong amount of money due to shoddy recordkeeping, as well as address other widespread abuses in the debt collection industry.

“Far too often, the debt collection industry has used despicable, high-pressure practices to intimidate struggling New Yorkers who have fallen on hard times,” said New York Governor Andrew Cuomo. “These nation-leading reforms will help make sure that consumers are protected and know their rights.”

Benjamin M. Lawsky, Superintendent of Financial Services, said, “Debt collectors frequently use abusive scare tactics to try to stack the deck against struggling families and squeeze outsized profits out of their financial misery. These reforms will help level the playing field for consumers so they have a fighting chance as they work hard to put their financial life back in order.”

The reforms are included in a new proposed regulation that the DFS is issuing through the first use of its “gap authority.” This “gap authority,” which was included in the law that Governor Cuomo signed in 2011 creating DFS, gives the DFS  the ability to regulate and enforce rules against previously unregulated providers of financial products and services that could otherwise fall through the cracks and hurt consumers.

DFS’s new proposed regulation includes the following key reforms (view a copy the official proposal here):

Authorizing Email Communication. Consumers will have the right to communicate with collectors through their email, if they choose to do so. The consumer must consent in writing — with an electronic signature filling this requirement — and the email address cannot be one from the consumer’s workplace.

Better Disclosures and Transparency. The regulation sets high standards for the information that must be provided to a consumer when debt collection activities begin. These disclosures go beyond current federal requirements, ensuring that collectors are maintaining and reviewing basic information, such as a breakdown of each charge and fee added to the debt and each payment made after charge off. This will help empower consumers with knowledge about where the debt came from and what additional fees the collector may have added to their debt, which is especially important when debts are sold and resold to collectors the alleged debtor has never heard of.

Protections against Collection of Time-Barred Debt. Under this new regulation, if a debt collector tries to collect on a debt after the statute of limitations has expired, the collector will need to inform the consumer, in every communication, that the statute of limitations has expired and the consumer can use that as a defense against a collection lawsuit.  Most consumers are not represented by counsel and debt collectors can take advantage of this by threatening to sue, or actually suing, without the consumer knowing he or she has this defense.

Verifying the Debt Is Actually Owed. This regulation would put in place groundbreaking procedures to make a debt collector verify the debt is actually owed if a consumer disputes its validity. Currently, consumers must dispute the debt in writing and request verification within 30 days of the first collection effort. Under the Cuomo Administration’s reforms, anytime a consumer disputes the validity of the debt, even on the phone, debt collectors will need to provide documentation proving that the debt is valid, including a copy of the signed contract and final account statement, and that the collector has “chain-of-title,” proving that the collector has the right to collect on the debt.

Settlement Agreements Must be in Writing. To ensure that creditors honor any settlement agreements, including those made with debt buyers earlier in the chain-of-title, consumers will receive written confirmation of any debt settlement agreement. Consumers will also receive written confirmation and acknowledgement that the debt has been satisfied to stop consumers from being pursued for debts that they already paid off.

DFS said it will aggressively investigate and pursue those firms that violate the consumer protections included in this regulation.

The proposed regulation will be published in the state register shortly and will be subject to a 45-day notice and comment period.