New York Issues Far-Reaching Debt Collection Regulations

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.

- Alan S. Kaplinsky, Marjorie J. Peerce, and Heather S. Klein 

CFPB Posts Video of November 18 Webinar on New Closing Disclosure

The Consumer Financial Protection Bureau has posted a video of its November 18 webinar that addressed questions about the final TILA-RESPA Integrated Disclosure Rule, which will be effective for applications received by creditors or mortgage brokers on or after August 1, 2015. The webinar was the fourth in a series to address implementation of the new rule. (To view the video, it is necessary to either have previously registered for the webinar or register when accessing the video.)

A detailed discussion of the webinar prepared by Marc D. Patterson, a member of Ballard Spahr’s Mortgage Banking Group, can be found here.

- Barbara S. Mishkin

Amicus Curiae Oppose Disparate-Impact Liability

Recently, following the U.S. Supreme Court's grant of certiorari, more than a dozen organizations, groups, and associations filed separate amicus curiae briefs in support of the notion that the Fair Housing Act (FHA) does not provide disparate-impact liability. These groups, arguing in support of the petitioner, the Texas Department of Housing and Community Affairs (Texas DHCA), include the insurance industry (American Insurance Association), the construction industry (National Association of Home Builders), and housing authorities (Houston Housing Authority). The Houston Housing Authority's brief, which Ballard Spahr drafted, can be accessed here.

To many of these entities, FHA disparate-impact liability stymies efforts to provide a non-discriminatory and facially neutral review of residential mortgage applications, insurance risk assessment and premiums, federally mandated background checks for public housing subsidy programs, and construction of affordable housing projects for low-income and minority communities. As noted by many of the amici, the danger in FHA disparate-impact liability is that it prevents groups from effectively serving the very individuals the Fair Housing Act aims to protect.

One week earlier, the Texas DHCA filed its merits brief arguing that FHA disparate-impact liability should not be recognized for many of the same reasons as amici. The Texas DHCA's brief also argued that the Supreme Court's 1971 plurality opinion in Griggs v. Duke Power Co. has proven unmanageable and should be overruled or ignored. Should the Court entertain the Texas DHCA's Griggs argument, this case could influence more than three decades of Title VII anti-discrimination law.

The respondent's brief is due later this month, and oral argument has been scheduled for Wednesday, January 21, 2015. Ballard Spahr will continue to monitor and provide updates as briefing concludes and oral argument approaches. An online directory of the merit and amicus briefs is available here.

- Michael W. Skojec and Bryan J. Harrison

Congress Votes Unanimously To Extend SCRA One-Year Foreclosure Protection Period

Congress has unanimously passed legislation to extend until January 2016 a provision of the Servicemembers Civil Relief Act (SCRA) that prohibits foreclosing on a servicemember’s house for one year following the servicemember’s return from active duty. The CFPB has made SCRA compliance a priority issue.

Senator Sheldon Whitehouse proposed S.2404, known as the Foreclosure Relief and Extension for Servicemembers Act of 2014, in May. The Senate approved the measure on December 11, and the House of Representatives followed suit the next evening during a special 10-minute session.

“After fighting for our country overseas, our troops shouldn’t have to fight to keep a roof over their heads when they return home,” said Senator Whitehouse in a press release. “Servicemembers returning from active duty often need time to regain their financial footing, particularly those in the National Guard and Reserves who give up their full-time jobs to fight for our freedom. We should ultimately pass legislation to make this protection permanent, but I’m glad we were able to secure peace of mind for our veterans for one more year.”

Congress extended the protection period from three to nine months in 2008 and to one year in 2012. Had Congress failed to act before the end of this year, the protection period would have reverted to its pre-2008 level of three months.

In a letter dated December 4, the Financial Services Roundtable (FSR) encouraged congressional leadership to extend the protection for at least one year, noting that a number of financial services companies had implemented a one-year protection period as a matter of company policy. We, along with the FSR, applaud Congress for this legislation and fully expect President Obama to sign it into law.

- Anthony C. Kaye

Welcome to Ryan J. Richardson

We are pleased to welcome Ryan J. Richardson, a consumer financial services and mortgage banking attorney, as the newest member of our Mortgage Banking Group. 

Ryan is an associate working in Ballard Spahr’s Washington, D.C., office, where he focuses on a wide range of consumer compliance issues, including the Truth in Lending Act, the Real Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act, the Electronic Funds Transfer Act, and the new mortgage rules promulgated by the CFPB.

Prior to joining Ballard Spahr, Ryan was an attorney with the Federal Deposit Insurance Corporation where he advised on consumer compliance issues, as well as represented the Division of Depositor & Consumer Protection in multiple intra-agency and interagency working groups focused on emerging payment products and payment platforms. He also advised the board of directors and general counsel on a wide range of enforcement matters, with specific emphasis on actions involving unfair or deceptive acts or practices.

Ryan holds a J.D. from Samford University, Cumberland School of Law and a B.A. in English Literature and Political Science from Birmingham-Southern College.

- Richard J. Andreano, Jr., and John D. Socknat

NMLS Releases MLO and Lender Numbers

The NMLS recently released its NMLS Mortgage Industry Report 2014 Q3 Update. According to the report, there were 343,800 state-licensed mortgage loan originators (MLOs) during the 2014 third quarter, a 10 percent increase from 311,589 in the 2013 third quarter. During the same period, the number of state-licensed mortgage companies dropped 1.2 percent, from 16,076 in third quarter 2013 to 15,887 in third quarter 2014. Meanwhile, the number of licenses held by those companies increased by 4 percent, from 34,663 to 36,107.

The surge in MLO state licenses reflects the growth the independent mortgage banking industry is experiencing as a result of increased access to warehouse credit and less exposure to regulation than big banks. Note that the number of MLO state licenses is not an accurate measure of the number individual MLOs because MLOs can be licensed in multiple states. The proliferation in state licenses for mortgage companies may also signal that non-depository lenders are expanding their territories.

In addition, according to the NMLS data, the number of federally registered MLOs is 393,981, and the number of federally registered institutions is 10,502.

- Marc D. Patterson

Copyright © 2014 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

Related Practices

Consumer Financial Services
Mortgage Banking


Visit CFPB Monitor, our blog on the Consumer Financial Protection Bureau >

Subscribe to the blog >

Subscribe to the Mortgage Banking Update and legal alerts >