July 25, 2013
Contact: Matt Anderson, 212-709-1691
CUOMO ADMINISTRATION PROPOSES NATION-LEADING REFORMS TO PROTECT CONSUMERS AGAINST ABUSIVE AND DECEPTIVE DEBT COLLECTION PRACTICES
DFS Issues New Consumer Protections through First Use of ‘Gap Authority’ under New York Financial Services Law
NEW YORK, NY – Benjamin M. Lawsky, Superintendent of Financial Services, today announced a set of nation-leading reforms to help protect consumers against abusive and deceptive debt collection practices. These reforms will help cut down on repeated, harassing phone calls from debt collectors; guard against the collection of ‘zombie debts’ that have already expired; prevent situations where companies try to collect debts from the wrong consumer for the wrong amount of money due to shoddy recordkeeping, as well as address other widespread abuses in the debt collection industry.
The reforms are included in a new proposed regulation that the New York State Department of Financial Services (DFS) is issuing through the first use of its ‘gap authority.’ This ‘gap authority,’ which was included in the law that Governor Cuomo signed in 2011 creating DFS, gives the Department the ability to regulate and enforce rules against previously unregulated providers of financial products and services that could otherwise fall through the cracks and hurt consumers.
“Far too often, the debt collection industry has used despicable, high-pressure practices to intimidate struggling New Yorkers who have fallen on hard times,” said Governor Cuomo. “These nation-leading reforms will help make sure that consumers are protected and know their rights.”
Benjamin M. Lawsky, Superintendent of Financial Services said: “Debt collectors frequently use abusive scare tactics to try to stack the deck against struggling families and squeeze outsized profits out of their financial misery. These reforms will help level the playing field for consumers so they have a fighting chance as they work hard to put their financial life back in order.”
Complaints about deceptive and abusive debt collection practices are among the most frequent financial complaints filed by consumers nationally and in New York. In the last eighteen months alone, New Yorkers filed more than 13,000 complaints about debt collection practices.
Consumers complain frequently that debt collectors make harassing calls to collect debts, and many times, are contacting the incorrect person for the incorrect amount of money. Problems are especially frequent in the rapidly growing debt buying industry, where companies purchase defaulted debts for pennies on the dollar and work to earn exponential returns through aggressive, often harassing, collection tactics. To keep costs down, debt buyers often maintain shoddy records and do little to verify that they are contacting the correct debtor or for the correct amount of money.
To address these and other serious abuses in the debt collection industry, DFS’s new proposed regulation includes the following key reforms:
Better Disclosures and Transparency.The regulation sets high standards for the information that must be provided to a consumer when debt collection activities begin. These disclosures go beyond current federal requirements, ensuring that collectors are maintaining and reviewing basic information, such as a breakdown of each charge and fee added to the debt and each payment made after charge off. This will help empower consumers with knowledge about where the debt came from and what additional fees the collector may have added to their debt, which is especially important when debts are sold and resold to collectors the alleged debtor has never heard of.
Protections against Collection of ‘Zombie Debts.’ Oftentimes, debt collection companies will try to collect on “zombie debts” for which the statute of limitations has already expired. Under this new regulation, if a debt collector tries to collect on a debt after the statute of limitations has expired, the collector will need to inform the consumer, in every communication, that the statute of limitations has expired and the consumer can use that as a defense against a collection lawsuit. Most consumers are not represented by counsel and debt collectors can take advantage of this by threatening to sue, or actually suing, without the consumer knowing he or she has this defense. This reform will help prevent companies from bringing expired zombie debts back from the dead.
Verifying the Debt Is Actually Owed.This regulation would put in place groundbreaking procedures to make a debt collector verify the debt is actually owed if a consumer disputes its validity. Currently, consumers must dispute the debt in writing and request verification within 30 days of the first collection effort. Under the Cuomo Administration’s reforms, anytime a consumer disputes the validity of the debt, even on the phone, debt collectors will need to provide documentation proving that the debt is valid, including a copy of the signed contract and final account statement, and that the collector has “chain-of-title,” proving that the collector has the right to collect on the debt.
Making Sure You Get It in Writing.To ensure that creditors honor any settlement agreements, including those made with debt buyers earlier in the chain-of-title, consumers will receive written confirmation of any debt settlement agreement. Consumers will also receive written confirmation and acknowledgement that the debt has been satisfied to stop consumers from being pursued for debts that they already paid off.
Cutting Down on Harassing Phone Calls. Consumers will also have the right to communicate with collectors through their email, if they choose to do so. This will help reduce harassing phone calls and allow consumers to easily keep better records of their interaction with creditors.DFS will aggressively investigate and pursue those firms that violate the consumer protections included in this regulation.
“Debt collection practices are ripe for reform,” said Carolyn E. Coffey, Supervising Attorney, MFY Legal Services, Inc. “We commend DFS for acting on behalf of vulnerable New York consumers to help level the playing field with new regulations.”
“The DFS rules will bring welcome relief to working people, low-income persons, and senior citizens across New York who are harmed every day by the unfair practices of debt collectors and debt buyers," said Robert Martin, Associate Director of DC 37 Municipal Employees Legal Services.
“For years, debt collectors have been riding roughshod over the rights of low income New Yorkers, harassing them for debts they don't even owe,” said Claudia Wilner, Senior Staff Attorney at New Economy Project. “These new rules will go a long way toward curbing these abuses, and will especially benefit New York's low-income communities and communities of color, which have borne the brunt of unlawful debt collection.”
The proposed regulation will be published in the state register shortly and will be subject to a 45-day notice and comment period.
To view a copy the proposed regulation, please visit, link.