The New York Attorney General and Federal Trade Commission (FTC) recently announced a joint debt collection enforcement action that had been filed last month in federal court in Buffalo, New York, against several corporations and their principals. The FTC and Attorney General sued multiple defendants in a 10-count complaint alleging, among other things, violations of Section 5 of the FTC Act, the Fair Debt Collection Practices Act (FDCPA), and Sections 349 and 601 of the New York Business Law, and seeking compensatory damages, civil penalties, and injunctive relief. This filing is further evidence of the heightened scrutiny faced by debt collectors in New York at both the state and federal level.

More specifically, the complaint alleged that the defendants “operated as a common enterprise” through “an interrelated network of companies that have common officers, managers, business functions, employees, and boiler room locations, and that commingled funds.” The government agencies claimed that the defendants’ violations included:

  • Misrepresenting that consumers committed check fraud in incurring the debt
  • Threatening consumers with arrest, wage garnishment, and imprisonment if they did not make an immediate phone payment
  • Failing to furnish consumers with debt collection notices and other disclosures mandated by law that “would assist consumers in understanding and challenging the purported debts”
  • Assessing unlawful “processing fees” to consumers making payments by phone
  • Attempting to collect debts previously discharged in bankruptcy court
  • Contacting friends, family members, and employers about the consumers’ debt and advising the consumers had committed check fraud

The government also announced that the federal court had issued a temporary restraining order, which included a complete asset freeze and appointment of a receiver for the corporate defendants. The federal court also ordered both the individual and corporate defendants to provide an immediate accounting “within three days of service of this order,” as well as repatriate all foreign assets.

The announcement of this action comes in the aftermath of the New York Department of Financial Services (DFS) issuing revised proposed debt collection regulations. If the DFS proposed regulations are adopted, the regulator would have additional tools to pursue third-party debt collectors and debt buyers. The Attorney General’s latest enforcement action, in conjunction with the DFS’ proposal, illustrates that debt collectors and debt buyers will remain under intense regulatory scrutiny in New York for the foreseeable future.

Ballard Spahr’s Consumer Financial Services 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 throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). Our attorneys, including the attorneys who joined us from the New York City litigation firm Stillman & Friedman, P.C., to form Ballard Spahr Stillman & Friedman LLP, 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 kaplinsky@ballardspahr.com, or Marjorie J. Peerce at 212.223.0200 x8039 or peercem@bssfny.com.


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