The New York Department of Financial Services (DFS) has proposed new regulations that would impose significant disclosure and other requirements on persons engaged in the collection of consumer debts. The proposed regulations are far-reaching and substantially more burdensome than the requirements of the federal Fair Debt Collection Practices Act (FDCPA).
Under the definition of “debt collector,” the regulations would include debt buyers and any person “engaged in a business with the principal purpose of collecting or attempting to collect debts” or “who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” As a result, the regulations would apply not only to third-party debt collectors and debt buyers, but also to servicers collecting current debts owed to others who generally are not subject to the FDCPA.
The covered entities would include both banks and nonbanks that qualify as “debt collectors.” The DFS has indicated that in issuing the proposal, it relied on its authority in the New York Financial Services Law (FSL) to prescribe regulations “involving financial products and services.” Under the FSL, the DFS may not regulate financial products or services if its rules would be preempted by federal law. Accordingly, if the proposed regulations were deemed to be state debt collection laws that are saved from preemption under Office of the Comptroller of the Currency regulations, the proposal would apply to national banks and federal savings banks.
The scope of the regulations does not appear to be limited to debt collectors located in New York. Nothing in the FSL expressly provides that DSF regulations “involving financial products and services” can only apply to entities located in New York. As a result, if the proposal is adopted, the DFS could take the position that the regulations apply to debt collectors collecting debts from New York residents without regard to the debt collector’s location.
The only apparent limitation in the proposal’s scope is that it defines the term “debt” to only include obligations that involve an extension of credit. As a result, it appears most medical debts would not be covered since they typically do not involve an extension of credit. The proposal also provides that the term “debt” does not include an obligation that “arises out of credit extended directly to a consumer exclusively for the purpose of enabling that consumer to purchase consumer goods or services directly from the seller.” It appears this language is intended to exclude retail installment sales contracts or other financing directly provided by sellers.
If adopted, the proposal would add a layer of new requirements that are not part of the FDCPA. These requirements consist of the following:
- Unless the required information is contained in the initial communication, a debt collector must provide the following two initial written disclosures within five days after the initial communication:
– Concerning the collection of “any debt,” notification of “the consumer’s rights in connection with the debt” that includes a disclosure regarding conduct that is prohibited by the FDCPA and a prescribed notice about sources of income that may be exempt from collection.
– Concerning the collection of “any defaulted debt,” notification “regarding the nature of the consumer’s defaulted debt,” that includes the name of the original creditor and an itemized accounting of the debt that contains certain specified information.
- If a debt collector knows or has reason to know the statute of limitations (SOL) applicable to a debt “may be expired,” the debt collector, before accepting payment, must provide a notice containing certain specified information “in the same medium (e.g., via telephone, electronic communication) that the debt collector will accept payment.” Prescribed language can be used to satisfy the notice requirement. The required information includes that:
– The debt collector believes the SOL may be expired.
– If the consumer is sued, the consumer can stop the lawsuit by telling the court that the SOL has expired.
– The consumer is not required to affirm or acknowledge the debt or waive the SOL.
– Payment can restart the SOL.
– Failure to pay the debt, even if the SOL has expired, can damage the consumer’s credit history and credit score.
- If a consumer disputes a defaulted debt’s validity or requests verification, the debt collector must provide a written verification within 30 days that contains certain specified information and retain certain documentation relating to the dispute or request “until the debt is discharged, sold, or transferred.”
- Before accepting payment on a defaulted debt under a debt payment schedule or other settlement agreement, a debt collector must provide a written confirmation of the schedule or agreement and repeat the notice about sources of income that may be exempt from collection. The debt collector must also provide an accounting of the debt to the consumer on at least a quarterly basis and, within 15 business days of receiving a payment satisfying the debt, send written confirmation of the satisfaction.
- A debt collector can communicate electronically with a consumer after sending the required initial written disclosures only if certain conditions are satisfied.
The proposal will be subject to a 45-day comment period following its publication in the New York State Register. Companies collecting debts from New York consumers should consult with legal counsel to review the proposal’s requirements and for assistance in commenting on the proposal.
Attorneys in Ballard Spahr’s Consumer Financial Services Group regularly advise clients on compliance with the FDCPA and state debt collection laws, defend clients in FDCPA lawsuits and enforcement matters, and represent clients commenting on regulatory proposals. They are also preparing clients for their first Consumer Financial Protection Bureau examinations. The Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.
Further enhancing these capabilities, Ballard Spahr and the New York City litigation firm Stillman & Friedman, P.C., recently joined forces to form a partnership in New York City—Ballard Spahr Stillman & Friedman LLP—practicing as the firm’s New York office. Attorneys in the firm’s New York office have significant experience in regulatory matters and commercial litigation.
For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or firstname.lastname@example.org, John L. Culhane, Jr., at 215.864.8535 or email@example.com, Collection Documentation Task Force Chair Christopher J. Willis at 678.420.9436 or firstname.lastname@example.org, Heather S. Klein at 215.864.8732 or email@example.com, James A. Mitchell at 212.223.0200 x8006 or firstname.lastname@example.org, or Marjorie J. Peerce at 212.223.0200 x8039 or email@example.com.
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