Strategies for Working with the New York City Department of Consumer Affairs

Scott Wortman

In 2010, the New York City Administrative Code was amended to provide the New York City Department of Consumer Affairs with additional powers regulating the credit and accounts receivable management industry, while also increasing requirements for all ARM companies licensed by DCA.

Since that time, many members of the ARM industry have concluded that DCA is enforcing a highly questionable interpretation of the Code. This includes:

1. issuing high-volume carbon-copy subpoenas searching for possible violations
2. making excessive monetary demands in return for continued licensure
3. using subpoenas to inquire into the practices of other ARM companies associated with the recipient of the subpoena
4. using opaque administrative hearings that seemingly endorse determinations made elsewhere 

In his remarks, the NY Chief Administrative Judge stated that “No one should be deprived of… basic due process protections.” In principle this statement is undeniable, but paradoxically, it is the credit and accounts receivable industry that faces daily obstruction and interference with basic due process protections.

By way of example, at a hearing against a collection agency before a DCA Administrative Law Judge on 8/18/2011, it was determined that the prosecuting attorney for DCA formerly served as the ALJ’s direct supervisor. In spite of an immediate inquiry into the ALJ’s possible recusal from the case, this only lead to the admission that DCA Administrative Law Judge previously worked for DCA’s principal prosecuting attorney, with the Administrative Law Judge finally acknowledging on the record, “Well, I don’t know what choices you have.”

Along these lines, in contrast to a typical legal proceeding, many creditors’ rights attorneys are suspicious of a process where they perceive the rules of the hearing as subjective and inconsistent and where the appearance of bias is acceptable. So what can be done? If an amicable resolution is not reached, here are some strategies for consideration.

Subpoena Power

From the outset, it should be noted that government and law enforcement agencies do not have an unfettered right to subpoena whatever data they want, whenever they want. Their broad powers certainly do not include arbitrary and unbridled discretion as to the scope of what is investigated in the hope that they might locate a possible violation.[i] In fact, a proper subpoena must establish, at minimum, that there is an authentic factual basis to warrant the particular investigation.”[ii] Accordingly, subpoenas may not be used as “fishing expeditions” to obtain evidence.[iii] Thus, a subpoena from DCA may be challenged in a response or separate action based on various legally cognizable objections.

License Revocation / Renewal

While a company has no “property right in a possible future license,”[iv] once the government has granted a business license to a company the government cannot deprive the entity of such an interest without appropriate due process procedural safeguards. (“A state-issued license for the continued pursuit of the licensee’s livelihood, renewable periodically on the payment of a fee and revocable only for cause, creates a property interest in the licensee”).[v] What’s more, the Supreme Court has “repeatedly recognized the severity of depriving someone of his or her livelihood.”[vi]

Therefore, if DCA licensure is revoked without notice and an opportunity to be heard, a company may have grounds to sustain a civil rights action if the following elements are met: (1) that the challenged conduct was committed by a person acting under color of law; and (2) that such conduct deprived the company of a right secured by the Constitution or laws of the United States.[vii] However; the same due process deprivation claims do not necessarily exist if a license simply expires without renewal by the administrative body.

Just recently, the 2^nd Circuit Court of Appeals upheld a decision that due process does not mandate a hearing before the denial of a process server’s renewal license.[viii] Still, this decision does not prevent a licensee from filing an Article 78 proceeding (discussed below) to challenge an adverse renewal determination by DCA. In addition, this decision may be distinguishable from other factual scenarios and legal claims. What’s more, considering DCA is seemingly singling out ARM members as a collective group for potentially losing licensure, this could be a matter of an arbitrary and selective enforcement, which would potentially be in violation of the U.S. Const., 14^th Amend, the N.Y. Const., Art. I § 11, and 42 U.S.C. § 1983. Considering what is at stake for the ARM Industry, the perceived intent to injure simply based on adverse and unsubstantiated stereotypes could conceivably be an impermissible arbitrary classification.

Article 78

As mentioned above, a company can appeal an administrative agency’s final determination regarding licensure to a New York State court in an Article 78 proceeding.[ix] In this regard, there are a number of favorable decisions reversing the findings of DCA based on determinations that DCA’s decisions regarding licensure were arbitrary, capricious and lacking of a rational basis.[x] Additionally, in the specific context of license renewal, the NY Supreme Court has held that while a petitioner has no prescriptive right to the continued renewal of licensure, when the grounds for the refusal to renew that license appear to be comparatively insubstantial, it may fairly be said that the determination is arbitrary and capricious.[xi]

There is also the possibility of an Article 78 mandamus proceeding to compel an agency such as DCA to perform a duty enjoined upon it by law,[xii] such as providing notice and an opportunity to be heard.

Excessive Fine

Both the Federal and State Constitutions prohibit the imposition of excessive fines.[xiii] This limits the government’s power to extract payments, whether in cash or in kind, as punishment for some offense. “A fine is unconstitutionally excessive if: (1) the payment to the government constitutes punishment for an offense, and (2) the payment is grossly disproportionate to the gravity of defendant’s offense.”[xiv] Based on this reasoning, DCA may be overstepping its administrative authority in seeking to impose substantial fines that tend to be wholly disproportionate to the alleged technical offense.