The New York Department of Financial Services (DFS) published its final debt collection regulations on December 3, 2014, following an extensive rulemaking period. The regulations impose requirements on third-party debt collectors and debt buyers that are substantially more burdensome than those in the federal Fair Debt Collection Practices Act (FDCPA). We expect that certain provisions of the DFS regulations could be adopted by the federal Consumer Financial Protection Bureau when it issues its proposed debt collection rule

The DFS regulations cover debts arising from consumer loans and exclude credit that a seller of goods or services provides in order for a consumer to purchase goods or services directly from the seller. The regulations also do not cover the collection of debt through litigation or when enforcing a money judgment. (In a related development, the New York Court System recently began requiring additional documentation to obtain a default judgment in a consumer collection action.) 

The regulations will become effective in two stages. A raft of disclosure requirements becomes effective March 3, 2015, including disclosures: at the outset of collecting the debt, before accepting payment on a debt that may be beyond the applicable statute of limitations, after entering into a payment plan or settlement agreement and periodically thereafter, and before communicating with the consumer by e-mail. Other provisions, which take effect August 30, 2015, will require collectors to have an itemized accounting of charged-off debts collected in New York and to produce a significant volume of documentation on such debts upon the consumer’s request. A more detailed summary of the DFS regulations is below.

The DFS regulations provide for the following:

  • Initial Disclosures, Including Itemized Accounting for Charged-off Debt: The regulations mandate certain written disclosures in the collector’s initial communication with the debtor or within five days thereafter, including a disclosure regarding conduct that is prohibited by the FDCPA and a prescribed notice about sources of income that may be exempt from collection. Effective August 30, 2015, a collector communicating regarding a charged-off debt also must include an itemized accounting of the amount of debt at the charge-off date, interest and non-interest charges accrued since charge-off, and the total of payments made since charge-off.

  • Disclosure before Accepting Payment on Out-of-Statute Debt: The regulations require a debt collector to “maintain reasonable procedures for determining the statute of limitations applicable to a debt it is collecting and whether a debt is expired.” If the collector knows or has reason to know that the statute of limitations (SOL) 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.” Model language set forth in the rule can be used to satisfy the notice requirement. The required information includes that:

– The debt collector believes the SOL may be expired.

– Suing on a debt for which the SOL has expired is a violation of the FDCPA.

– 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.

  • Additional Dispute Rights for Consumers: The regulations require collectors to “substantiate” a charged-off debt upon the consumer’s request for substantiation. A substantiation request may be made at any time during the period that the collector owns or has the right to collect the debt. Upon receipt, a collector must cease collecting the charged-off debt and within 60 days provide the consumer with a copy of a judgment against the consumer or other written evidence of the debt, consisting of all of the following: (1) a signed contract, application or other document sent to the debtor while the account was active which demonstrates that the debtor incurred the debt; (2) the charged-off account statement or equivalent issued by the original creditor to the consumer; (3) a statement describing the complete chain of title, including the dates of each assignment, sale and transfer; and (4) if applicable, any prior settlement agreement.

  • Disclosures Accompanying Debt Payment Plan or Settlement Agreement: Within five days of obtaining the consumer’s agreement to a payment schedule or other settlement agreement, a collector must provide a consumer with written confirmation of the schedule or agreement and repeat its prior notice about sources of income that may be exempt from collection. The collector must also provide an accounting of the debt to the consumer on at least a quarterly basis while the consumer makes scheduled payments and, within 20 business days of receiving a payment satisfying the debt, send the consumer written confirmation of the satisfaction.   

  • Consent to Electronic Communications: A collector may not communicate electronically with a consumer after it sends the required initial written disclosures unless the consumer voluntarily provides an e-mail account, affirms that the account is not furnished or owned by an employer, and gives written consent to receive e-mails from the debt collector concerning a specified debt.   

Attorneys in Ballard Spahr’s Consumer Financial Services Group regularly advise clients on compliance with the FDCPA and state debt collection laws and defend clients in FDCPA lawsuits and enforcement matters. They also prepare 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. 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 regulatory matters and commercial litigation.

For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, John L. Culhane, Jr., at 215.864.8535 or culhane@ballardspahr.com, Marjorie J. Peerce at 212.223.0200 x8039 or peercem@bssfny.com, Collection Documentation Task Force Chair Christopher J. Willis at 678.420.9436 or willisc@ballardspahr.com, or Heather S. Klein at 215.864.8732 or kleinh@ballardspahr.com.


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