The New York Department of Financial Services (DFS) announced last week that it had entered into consent judgments with Webcollex LLC d/b/a CKS Financial (CKS) and National Credit Adjusters (NCA) for allegedly violating the federal Fair Debt Collection Practices Act and New York Debt Collection Procedures Law. Critically, the settlements mark the first time that the DFS has prosecuted a debt collector or debt buyer for collecting on payday loans that are unlawful under New York law.

Specifically, the DFS alleged that CKS had attempted to collect on 537 "payday and other usurious loan debts" and successfully collected as to 52 consumers. The consent order required CKS to immediately release and discharge (if the accounts are owned by CKS) or cease collection efforts (if they are owned by a third party) as to all active payday loan accounts. The DFS also ordered CKS to refund all payments it had collected with respect to the 52 consumers, which totaled $66,129, and assessed a civil monetary penalty in the amount of $25,000. Lastly, the DFS enjoined CKS from selling or assigning any current payday loan accounts and required CKS to remove all negative information previously reported to the credit bureaus as to those consumers.

Similarly, the DFS alleged that NCA collected and attempted to collect "on thousands of usurious payday loan accounts of New York consumers." The DFS required NCA to immediately release and discharge 2,801 active payday loan accounts totaling $2,263,051.66 and remit $724,577.83 to 4,760 consumers. The DFS also assessed a $200,000 civil monetary penalty. Lastly, the DFS enjoined NCA from selling or transferring payday loan accounts, ordered it to vacate judgments obtained on payday loan accounts, and remove negative information reported to the credit bureaus as to those consumers.

This latest DFS enforcement action provides yet another illustration that its crackdown on payday loans is still expanding. Any financial institution, payment processor, collector, or other vendor that facilitates payday lending in New York is taking a substantial risk. Accordingly, it is important that companies maintain proper record keeping to ensure that to the extent they work with payday lenders, they are not doing so in New York.

Attorneys in Ballard Spahr's Consumer Financial Services Group regularly advise clients on compliance with the Fair Debt Collection Practices Act. They also prepare clients for Consumer Financial Protection Bureau and New York Department of Financial Services 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, state and local debt collection laws, and its skill in litigation defense and avoidance. Further, the Group regularly defends debt collectors in individual and class action litigation brought in New York and federal courts, as well as enforcement actions brought by the Consumer Financial Protection Bureau, New York Department of Financial Services, New York Attorney General, and New York City Department of Consumer Affairs.

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