New York Toughens Rules for Debt Collection Firms

New York Gov. Andrew Cuomo has approved several new rules for debt collectors, including an extended period for consumers to dispute a collection attempt.

The regulations released on Wednesday apply to companies attempting to collect debts from residents of New York state, said Matt Anderson, a spokesman for the New York Department of Financial Services. Any debt-collection firm headquartered inside or outside New York state would be subject to the rules.

New York's rules come as federal agencies have also boosted efforts to regulate firms that harass borrowers, target consumers who no longer owe money or engage in fraud while trying to collect consumer debt. The Consumer Financial Protection Bureau plans to issue a proposal in April for rules governing debt collectors. The Office of the Comptroller of the Currency in September 2013 issued a consent order requiring JPMorgan Chase to reform its in-house debt collection department, and the bank later closed the division.

New York issued the first draft of the proposed debt-collection rules in July 2013. The state made changes after receiving public comments and issued a revised proposal in August of this year. The final set of rules are revised from the August proposal.

Under the new rules, debt collectors will be required to substantiate at any time that they are pursuing legitimate debts, if a consumer requests such proof, either orally or in writing. Currently, consumers can only dispute a debt collector in writing within the first 30 days of a collection attempt.

Other provisions include:

• Enhanced requirements for disclosures made by debt collectors to borrowers, including information showing where a debt was originated and the total amount owed. 
• Increased protections for borrowers when a firm tries to collect debts after the statute of limitations has expired (often referred to as zombie loans). 
• A requirement that creditors provide written confirmation of a settlement agreement regarding a debt collection, and written confirmation when a debt has been paid off.

Violators of the new rules will be subject to civil monetary penalties, the state said. Some of the rules will take effect in March and the rest in August. The administrative regulations will be enforced by the state Department of Financial Services. The rules do not require approval of the New York Legislature, Anderson said.
ACA International, a trade group representing third-party debt collectors, said it would have preferred that New York wait to issue the regulations until after the CFPB issues its own proposal next year.

ACA "strongly advised" state officials to eliminate some of the rules for debt collectors that it deemed burdensome, but it was unsuccessful in having all of its concerns addressed, the group said Wednesday. It is evaluating the new rules, and its legal department will offer its members advice on compliance soon, said Alex Szeto, an ACA spokesman.

Joann Needleman, the president of the National Association of Retail Collection Attorneys, a trade group for lawyers who collect debts, said the New York rules "will benefit consumers and responsible collectors." The group worked with the state on developing the regulations, Needleman said.

Four consumer advocacy groups issued statements on Wednesday supporting New York's regulations, including Consumers Union and the New Economy Project.