New Rules Relating to Default Judgments in Consumer Credit Transactions Under New York State Law

Effective October 1, 2014, the Administrative Judge of the New York court System adopted major reforms addressing default judgment applications to the Clerk only (CPLR 3215(a)) in consumer credit collection cases, including those commenced by third-party deb buyers. These rules do not apply to debt purchased from original creditor before October 1, 2014, provided the plaintiff affirms that the debt was purchased. However, the affidavit requirements would apply in all actions as of July 1, 2015, even if the debt was purchased prior to October 1, 2014.

Some of the new affidavits required by these rules are: the affidavit of facts by an original creditor, which is effective October 1, 2014; in debt buyer actions involving debt purchased from an original creditor on or after October 1, 2014, the affidavit of facts and purchase of account by debt buyer plaintiff, the affidavit of facts and sale of account by original creditor, and if applicable, the affidavit of purchase and sale of accounts by the debtor seller; and in all original creditor and deb buyer actions, an affirmation of non-expiration of statute of limitations, effective October 1, 2014, applies. Different affidavit requirements apply depending on whether the plaintiff is an original creditor or debt buyer. Additionally, in debt buyer actions, the new affidavit requirements initially take effect prospectively (except for the affirmation of non-expiration of statute of limitations). However, beginning July 1, 2015, the new affidavits will be required in all debt buy actions, irrespective of when the debt was purchased from the original creditor.

The affidavit in debt buyer actions must be supported by exhibits, including copies of the credit agreement, the bill of sale or written assignment of the account and relevant business records of the original creditor that set forth the name of the consumer, last four (4) digits of the account number, the date and amount of the charge-off balance, date and amount of last payment and the balance due.

Under 202 of the Uniform Rules for the Supreme and County Courts, a party in connection with this consumer credit case must file a Request for Judicial Intervention ("RJI") when making an application for a default judgment to the clerk in a consumer credit matter in Supreme Court. No fee will be required for the filing of RJI.

Form affidavits for use by plaintiffs seeking these default judgments will be made available on the Uniform Court System website and may be made available in the Clerk's Office for the convenience of litigants and/or their attorneys. The office of the State Wide Director of Access to Justice Program has also developed special forms for use by unrepresented litigants in consumer credit actions which will be distributed in the coming months.

One of the most important aspects of the new rule is the addition of section 208.6(h). this amended rule requires plaintiffs, when filing proof of service of the summons and complaint, to submit to the Clerk a stamped envelope containing an additional notice of a consumer credit action addressed to the defendant at the address where process was served. The face of the envelope shall contain as a return address the appropriate Clerks' Office to which defended should be directed. The additional notice is to be mailed promptly by the Court to the defendant. No default judgment may be entered unless there has been compliance with this requirement and at least twenty (20) days of elapsed from the date of mailing. The Court may not enter a default judgment if the addiotnal notice is returned to the Court as undeliverable, unless the address at which process was served matches the defendant's address on record with the New York State Department of Motor Vehicles.

These new rules have been put in place to correct the abuses in consumer credit industry where persons and entities have purchased from the original oblige defaulted consumer debt obligations where these persons or entities seek to collect monies from consumers.

The applicability of these new rules to consumer credit transactions, as defined under said rules, relate to revolving or open-end credit extended by financial institutions to an individual primarily for persona, family or household purposes, with terms that include periodic payment provisions, late charges and interest accrual. This definition applies to credit card debt, but does not apply to debt incurred in connection with, among others, medical services, student loans, auto loans or retail installment contracts.

The new rules are designed to correct these abuses by requiring plaintiffs to submit specific affidavits and documentation, including affidavits from original creditors and intervening debt buyers, that are based on personal knowledge and meet subsequent legal and evidentiary standards for the entry of a default judgment under New York law. It is designed to ensure a fair legal process and address a number of documented abuses (including entry of default judgments despite insufficient or incorrect factual proof, expiration of the applicable of statute of limitation and failed service of process).