New York Regulator Proposes Strict New Standards for Debt Collection

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The New York State Department of Financial Services Friday sent a letter to that state’s Chief Administrative Judge of the Courts urging the adoption of tough new standards for lawsuits seeking to recover debt.  The letter also detailed proposals aimed at “pre-litigation” practices used by some debt collectors.

Benjamin Lawsky, head of the Department of Financial Services (DFS) said that the letter was in response to new rules proposed by the courts for debt collection lawsuits, including the use of standardized forms for creditors and collectors bringing suit. Lawsky welcomed the changes, but noted, “The Department believes, however, that the proposed rules could go much further to address the significant debt collection litigation abuses that have a profound impact on New Yorkers and the state court system.”

In July, the DFS proposed a set of rules for debt collection activity, referenced in the letter as “pre-litigation” rules.

“While I am confident that this proposed regulation is an important step to rein in unscrupulous debt collectors and ensure safe and fair credit practices in New York, reforming how creditors collect debt in the New York courts is an important next step,” wrote Lawsky.

The DFS wants the New York courts to be “bolder” in their reforms, noting that they should include:

  • Debt collectors should send consumers a pre-complaint notice, informing them of impending collection litigation, as well as disclosure of the consumer’s rights and basic information identifying the debt. This would provide an opportunity to the alleged debtor to request more information if needed to evaluate options, such as settling or hiring an attorney.

  • Courts should require enhanced service standards for these consumer credit cases, where service has historically been poor and consumers have typically been unrepresented. If filing for a default judgment in a debt collection case, plaintiffs should provide demonstrable evidence of service, such as a GPS report or time-stamped pictures.

  • Debt collectors should include some documentation evidencing the debt with a complaint, including a final statement sent to the consumer, and, where available, the signed contract or other terms and conditions attached to the debt. Pursuant to the Department’s proposed regulation, these documents will be provided to consumers who request verification of a debt. Also, requiring these documents with a complaint is a logical extension of the regulation’s pre-litigation requirement that would not add significant burden to creditors.

  • Consumers should be provided an adequate opportunity to vacate a default judgment if a debt collector does not comply with the Court’s rules.

Collection agencies have already sought legal advice about proper written communication. For instance, the Second Circuit Court of Appeals – which includes New York – is the birthplace of the “Greco rule.” The Greco disclosure said that an attorney could disclaim that they’re acting as an attorney if they put in their letter a certain disclosure that they haven’t reviewed the file. In this case, the collection law firm made sure to have this sentence clearly on the front page:

At this time, no attorney with this firm has personally reviewed the particular circumstances of your account. However, if you fail to contact this office, our client may consider additional remedies to recover the balance due.”

For more information about how debt collectors can make sure their written and verbal communications are compliant, check out our To the Point: Written and Verbal Communication from the popular Ask the Attorney webinar.

Continuing the Discussion

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  • avatar David Russell says:

    “If filing for a default judgment in a debt collection case, plaintiffs should provide demonstrable evidence of service, such as a GPS report or time-stamped pictures.”

    I’m betting taking pictures would trigger lawsuits based consent, privacy or harassment.

  • avatar Ameripay says:

    Many process servers are using smartphones and snapping GPS recorded pictures at the time of service these days. I think it’s one of the greatest technological enhancements to the process serving industry in decades.

  • avatar John Smith says:

    I am continually astounded at the amount of time, effort and money that is spent in helping consumers dishonor their commitment to others.

    It also has not gone unnoticed that all this creative legal posturing has only one purpose and that is to feather the nests of attorneys that can’t make a living practicing normal law. We now have a growing infestation of parasitic legal underperformers twisting the law to suit their personal agenda (greed) and not that of the citizens of this country.

    Our country is going through a time of stressful challenges and we have high ranking government officials spending time on attempting to fix what is not broken?

  • avatar Sisko says:

    The first reform sounds to me like it’s trying to give the debtors an opportunity to skip town before they get served. But the second one sounds good to me, I’d love to see an end to sewer service.

  • avatar Commercial Guy says:

    I agree with Ameripay, this advance is wonderful. Also, the requirement to submit documentation of the debt with the complaint should have been in place a long time ago. I know that none of the attorneys that I use will file a complaint without having all of the necessary proof of the debt in their possession. If all collection attorneys had been doing this all along, we would not currently have the huge backlash that we do concerning legal collections. Although I understand the business model of filing all the suits you can, since 95% (or so) end up as a default judgment, the practice has been rife with abuse.

    As far as the pre-complaint notice, this just sounds like another letter in a pre-planned series…if they didn’t skip town when they got your first or second letter, this probably isn’t going to send them screaming for the state line.

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