New Consumer Protections Issued Through First Use of “Gap Authority” Under New York Financial Services Law
Governor Andrew M. Cuomo today announced new, nation-leading reforms that will protect consumers against abusive and deceptive debt collection practices. These new, finalized state Department of Financial Services regulations will provide consumers with important disclosures to help combat aggressive and deceptive practices that take advantage of confusion or fear, help stop attempts to sue to collect "zombie debts," establish a new debt "substantiation" requirement so that consumers can request information to avoid paying what they do not owe, and address other widespread abuses in the debt collection industry.
“Here in New York we will not tolerate debt collectors who wrongfully take advantage of consumers,” Governor Cuomo said. “That’s why we’re rolling out tough new regulations that protect borrowers and help crack down on illegitimate debt collection practices. These new tools and disclosures will protect New Yorkers across the state, and I am pleased that our administration is leading the way on this issue."
Benjamin M. Lawsky, Superintendent of Financial Services, said, "The debt collection industry is filled with far too many unscrupulous actors willing to deceive and abuse consumers just to make a quick buck. These important reforms will provide significant, new protections for financially struggling New Yorkers from harassment and fraud, and help us root out these predatory practices."
In 2014 alone, New York consumers have filed more than 20,000 complaints regarding debt collection practices. They report that debt collectors make harassing, aggressive calls to collect debts and sometimes attempt to collect an incorrect amount of money and even contact the incorrect person. Problems are especially frequent in the rapidly growing debt buying industry, where companies purchase defaulted debts for pennies on the dollar. To keep costs down, debt buyers often maintain shoddy records and do little to verify that they are contacting the correct debtor or for the correct amount of money. In addition, the same debt portfolios may be sold to multiple buyers, and without clear records, even consumers who have paid off a debt may be pursued for the same debt by a different collector.
Visit here to learn more about the new regulations being implemented in 2015 and what to do if a debt collector is engaging in improper or abusive collection tactics.
These regulations are the result of more than a year of meetings with consumer advocates, the debt collection industry, and the review of public comments from two earlier published versions of the regulations. The state Department of Financial Services promulgated these regulations through the first use of “gap authority.” This authority, which was included in the 2011 law signed by Governor Cuomo creating the Department of Financial Services, includes the ability to regulate and enforce rules against previously unregulated providers of financial products and services that could otherwise fall through the cracks and harm consumers.
To address these and other serious abuses in the debt collection industry, the new regulations of third-party debt collectors and debt buyers include the following key reforms:
Improved Disclosures and Debt Information
The regulations require enhanced initial disclosures when a new debt collector first contacts an alleged debtor. The debt collector must provide general information on the rights of debtors and, for charged-off debts, specific information about the debt that they are attempting to collect. These disclosures go beyond current federal requirements, ensuring that collectors have key information about the charged-off debts they collect, such as the amount owed at charge-off, and the total post-charge-off interest, charges, and fees. As consumer debts may be sold and resold, this information will help combat fraud and debtor confusion by showing an alleged debtor where the debt originated and the total debt owed both at charge-off and after years of interest and fees were added.
Protections Against Collection of “Zombie Debts”
Some debt collectors collect on debts for which the statute of limitations has already expired. If a collector attempts to collect on a debt for which the statute of limitations has expired, prior to accepting payment, the collector must provide notice that they believe the statute of limitations may be expired and that, if the consumer is sued on such a debt, the consumer may be able to prevent a judgment by informing the court that the statute of limitations has expired. Because the vast majority of debtors who are sued are not represented by counsel, debt collectors may take advantage of New York consumers’ lack of awareness of the statute of limitations defense when collecting debts for which the statute of limitations has expired.
“Substantiation” of the Debt Allegedly Owed
These regulations establish groundbreaking protections that require a debt collector to “substantiate” that a debt is actually owed in response to a consumer’s oral or written dispute of a debt at any point in the collections process. These protections will help ensure that collectors are collecting from the correct parties and that consumers can be confident that they are repaying legitimate debts. Currently, consumers must dispute the debt in writing and request verification within 30 days of the first collection attempt. Under the new regulations, a consumer can request “substantiation” of the debt at any time during the collections process. This will empower the many consumers who do not exercise their right to verification under the Fair Debt Collection Practices Act within the short 30-day window. Once a debt collector receives a substantiation request, the debt collector must cease collection and provide documentation proving the validity of the debt and the creditor’s right to collect that debt within 60 days.
Written Confirmation of Settlement Agreements
To ensure that creditors honor settlement agreements reached with New York consumers, and that consumers and debt collectors agree on material terms of their settlements, consumers will now receive written confirmation of any debt settlement agreement. Consumers will also receive written confirmation once a debt is satisfied. If another creditor attempts to collect that debt, consumers will have written documentation that the debt has been paid off.
Opportunity for Email Contact
Consumers will have the right to communicate with collectors via their personal email if they so choose. This will help reduce harassing phone calls and allow consumers to maintain better records of their interactions with debt collectors.
The regulations represent an ongoing focus on eliminating unfair debt collection practices in New York. Along with enforcing these new regulations, violations of which are punishable by civil monetary penalties, the Department of Financial Services also has the authority to impose civil penalties on collectors that violate the state and federal Fair Debt Collection Practices Acts.
The new regulations will take effect on March 3, 2015, with the exception of Sections 1.2(b) and 1.4, which take effect on August 30, 2015 in order to give debt collectors time to gather the documentation required by those sections. Section 1.2(b) refers to disclosure requirements and 1.4 refers to substantiation of debts.
Chuck Bell, Programs Director for Consumers Union, publisher of Consumer Reports, said, “These new New York State rules are a huge step forward for protecting consumers from abusive and deceptive debt collection practices. We applaud Governor Andrew Cuomo and the New York Department of Financial Services for their sustained efforts to ensure that consumers are fully informed of their rights, and treated fairly in the financial services marketplace.”
Claudia Wilner, Senior Staff Attorney at New Economy Project said: "For years, debt collectors -- and debt buyers, in particular -- have extracted hundreds of millions of dollars from low-income communities and communities of color in New York, aggressively trying to collect on debts they cannot even substantiate. Department of Financial Service's new rules will address many debt collection abuses head-on. The rules are a great step towards ensuring economic justice for New Yorkers, and we laud Superintendent Lawsky for his leadership."
Carolyn E. Coffey, Supervising Attorney at MFY Legal Services, Inc., said, "We welcome the new rules, which will go a long way toward cracking down on the prevalent practice of collecting bogus debts, and we commend Governor Cuomo for taking a stand to protect the rights of New Yorkers."
Robert Martin, Associate Director of DC 37 Municipal Employees Legal Services said, "DFS has taken a huge step toward putting the brakes on debt collectors who act on flimsy and inaccurate records to collect debts that are in many cases not owed or are stale. These rules will help bring fairness to working people and low-income persons and all New Yorkers who have been harmed by bad practices. Governor Cuomo and Superintendent Lawsky are to be commended for this initiative."
Consumers who believe that they have been the victims of debt collection efforts that violate the new regulations and/or the state or federal Fair Debt Collection Practices Acts are encouraged to file a complaint with the Department of Financial Services at (800) 342-3736 or online at http://www.dfs.ny.gov/consumer/fileacomplaint.htm.
To view a copy the final regulations, please visit here.