New York State Superintendent of Financial Services has enacted a new regulation titled "Debt Collection by Third-Party Debt Collectors and Debt Buyers". This regulation is designed to provide consumers with important disclosures to help fight "aggressive and deceptive practices" from debt collectors, establish a new debt "substantiation" requirement so that consumers can request information to avoid paying what they do not owe, and address other widespread abuses in the debt collection industry.
The regulation applies to any "debt collector" who regularly collects on behalf of another. The definition of "debt collector" is similar to the Fair Debt Collection Practices Act ("FDCPA") of a debt-collector with two (2) important distinctions. The regulation specifically includes a buyer of debts and specifically excludes law firms engaged in commencing and/or proceeding in litigation of collection actions.
While the definition of "debt" is likewise similar to the FDCPA definition, there is one important exception. Unlike the FDCPA, the definition of "debt" specifically excludes an obligation "which arises out of a transaction wherein credit has been provided by a seller of goods or services directly to a consumer exclusively for the purpose of enabling that consumer to purchase such consumer goods or services directly from the seller".
The regulation requires a debt collector to provide certain mandated disclosures to a "person who owes or is alleged to owe a debt" ("consumer"). The required disclosure includes information about the consumer's rights and information about the origin and progression of any charged-off debt.
One of the key elements of the new regulation addresses those debt collectors who attempt to collect a debt for which the applicable statute of limitations has expired. It requires such debt collectors to maintain reasonable procedures for determining the statute of limitations applicable to a debt it is collecting and whether such statute of limitations has expired. If a debt collector knows or has reason to know that the applicable statute of limitations has expired, before it accepts payment from the consumer, it must provide disclosure regarding the consumer's rights, including disclosure that the statute may be expired, that suing on an expired debt violates the FDCPA, that the consumer can stop the lawsuit, that the consumer is not obligated to acknowledge the debt or waive the statute of limitations and that any payments or promises to pay may restart the statute of limitations.
With regard to the "substantiation" requirement for a charged-off debt, i.e., debt for which the original creditor has written off the debt as a loss, the regulation provides for the right of a consumer to dispute the debt and demand verification of the debt. Upon the demand of the consumer, the debt collector is required to substantiate the debt with documentation of the original debt, the charge-off account statement, a statement describing the chain of title of the debt and records of any prior settlement agreement.
The debt collector is also required to provide the consumer with a written confirmation of a payment schedule and an exempt income disclosure. The debt collector must also furnish a consumer who is repaying his debt on a payment schedule a quarterly accounting and written confirmation of satisfaction of a debt.
Except for the provision in the regulation concerning itemization of the debt to be provided in the initial disclosure and informing the consumer of the right to demand substantiation (or verification) of a debt, which becomes effective August 3, 2015, the remainder of the procedures became effective March 3, 2015.
Remember, this new regulation does not apply to original creditors, but only to third-party debt collectors collecting on behalf of original creditors. It also does not apply to any debt originated out of a transaction wherein credit has been provided by a seller of goods or services directly to a consumer exclusively for the purpose of enabling that consumer to purchase consumer goods or services directly from the seller. This exception would include the extension of credit for medical services, the purchase of an automobile, or a retail installment contract if the credit is extended by the seller for specific goods or services. This debt remains exempt from said regulation even if it is sold to a new creditor or given to a third party collector.
It is important to look at the new rules and regulations because certain parts apply only to debts that have been charged-off and others apply to any debt.
Unlike the FDCPA, the Department of Financial Services regulation does not create a separate private right of action for violation of the regulations.
The Department of Financial Services has provided a frequently asked questions web page to provide answers to consumers, debt collectors and creditors to assist them in understanding the new regulations under 23 NYCRR 1. The web page can be found at http://www.dfs.ny.gov/legal/regulations/adoptions/faq-debt-collect.htm.