A proposal by the New York Department of Financial Services (DFS) would substantially drive up the costs of bringing consumer debt collection actions in the state. The DFS is seeking stronger court rules for obtaining default judgments in debt collection actions than those recently proposed by the state’s Advisory Committee on Civil Practice. The proposal, which would amend the Uniform Rules applicable to New York City Civil Court and courts outside the City, would establish five forms of standard affidavits for use by plaintiffs requesting entry of default judgments in such actions. Comments are due by December 4, 2013.
While applauding the proposed rules as “a positive first step” in its comment letter on the proposal, the DFS stated that “the proposed rules could go much further to address the significant debt collection litigation abuses that have a profound impact on New Yorkers and the state court system.” Among other things, the DFS urged the Advisory Committee to adopt the following measures to protect consumers in collection lawsuits:
- Mandatory pre-suit notice that advises the consumer of impending collection litigation and discloses basic information on the debt and the consumer’s rights
- Stronger affidavits to prevent robo-signing, including requiring the affiant not only to attest to “personal knowledge” of the plaintiff’s books and records, but to personal knowledge of the debtor’s records, including the date of charge-off and date of last payment
- “Demonstrable proof of service” by the plaintiff before the entry of a default judgment, such as a global positioning system (GPS) report or time-stamped pictures
- The provision of an “adequate opportunity” to consumers to vacate a default judgment upon a violation of the court’s rules
The DFS claimed that stronger measures are needed because debt buyers allegedly consistently fail to obtain records verifying ownership and the balance owed before obtaining a default judgment. In fact, the DFS claimed that “the collection industry’s litigation strategy … relies on consumers failing to appear in court, or if they do appear, being unrepresented by counsel.” Lastly, the DFS noted that stronger rules governing debt collection litigation would complement the pre-litigation debt collection rules proposed by the DFS in July 2013. (The DFS proposal would impose significant disclosure and other requirements on persons engaged in the collection of consumer debts. For a summary of the proposal, see our prior legal alert).
The DFS’ proposed measures would significantly increase the costs of bringing collection actions in New York. For example, requiring an affiant to have personal knowledge of the individual debtor’s loan records is unprecedented and marks a departure from the traditional business records exception to the hearsay rule.
If New York were to adopt the proposal, creditors and debt collectors could be forced to hire additional staff, since a debtor’s attorney would likely challenge an affidavit executed by an employee who repeatedly signs affidavits in collection cases. Further, the DFS or Attorney General could bring an enforcement proceeding against a debt collector or creditor that repeatedly used the same affiant in collection cases.
Additionally, a requirement of “demonstrative proof of service” in collection cases is particularly burdensome. If the rule were to explicitly set forth what constitutes “demonstrative proof of service,” then creditors and debt collectors would have to incur the additional cost to obtain such proof. Alternatively, if the statute did not define “demonstrative proof of service,” then the issue could be litigated on a case-by-case basis.
Attorneys in Ballard Spahr’s Consumer Financial Services Group regularly advise clients on compliance with the federal Fair Debt Collection Practices Act (FDCPA) and state debt collection laws, defend clients in FDCPA lawsuits and enforcement matters, and represent clients commenting on regulatory proposals. The Group has created a team of lawyers who are assisting debt collectors and debt buyers in preparing for Consumer Financial Protection Bureau examinations and responding to CFPB civil investigative demands. It also 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. Our attorneys, including the New York attorneys who joined us, have substantial experience in handling litigation with DFS and the New York Attorney General.
For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or email@example.com, John L. Culhane, Jr., at 215.864.8535 or firstname.lastname@example.org, Collection Documentation Task Force Chair Christopher J. Willis at 678.420.9436 or email@example.com, Heather S. Klein at 215.864.8732 or firstname.lastname@example.org, Justin Angelo at 212.223.0200 x8012 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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