NY Businesses Must Comply With New Debt Collection Regulations in 2015

Earlier this month, the New York Department of Financial Services issued rules regarding new debt collection regulations.

The regulations represent the first use of “gap authority” under the New York Financial Services Law, enacted in 2011. That statute allows the state to regulate and enforce rules against previously unregulated providers of financial products and services.

“Here in New York we will not tolerate debt collectors who wrongfully take advantage of consumers,” Governor Andrew Cuomo said in a press statement. “That’s why we’re rolling out tough new regulations that protect borrowers and help crack down on illegitimate debt collection practices. These new tools and disclosures will protect New Yorkers across the state, and I am pleased that our administration is leading the way on this issue.”

Below are several key provisions of 23 NYCRR Part 1:

Enhanced disclosures:

The regulations require debt collectors to make additional initial disclosures when first contacting an alleged debtor. In addition to providing general information on the rights of debtors, collectors must disclose, as to charged off debts, specific information about the debt, such as the amount owed at charge-off, and the total post-charge-off interest, charges, and fees.

Statute of limitations:

The law aims to protect consumers from so-called “zombie debts,” (which are debts for which the statute of limitations has already expired), by requiring 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. Prior to accepting payment for such debts, collectors must notify the consumer that they believe the statute of limitations may be expired and that, if the consumer is sued on such a debt, the consumer may be able to prevent a judgment by asserting that the statute of limitations has expired.

Settlement agreements:

Within five business days of agreeing to a debt payment schedule or other agreement to settle a debt, a debt collector must provide the consumer with written documentation, which includes include all material terms and conditions relating to the payments and schedule as well as a required notice regarding types of income that cannot be garnished to satisfy a debt.

Debt substantiation:

Under the new law, a consumer can request “substantiation” of the debt at any time during the collections process. Upon receipt of a substantiation request, the debt collector must cease collection and provide documentation proving the validity of the debt and the creditor’s right to collect that debt within 60 days.

Email communication

: After mailing a consumer the written disclosures required under the regulation, a debt collector may provide subsequent correspondence to the consumer through electronic mail only if the consumer has voluntarily provided a personal email address that the consumer has affirmed is not furnished or owned by the consumer’s employer, and has consented in writing to receive electronic mail correspondence from the debt collector in reference to a specific debt.

The new regulation will take effect on March 3, 2015. However, the provisions governing disclosure requirements and substantiation of debts will be delayed for an additional period of time in order to provide debt collectors time to comply.