New York State’s Department of Financial Services Wednesday announced the formal adoption of new debt collection regulations that place new specific disclosure and written communication requirements on third party debt collectors and debt buyers. In addition to new requirements, the rules also create a structure for the use of email in debt collection efforts.
Many of the rules, initially proposed in mid-2013, will go into effect in March 2015, while some debt verification, disclosure, and communication requirements will go into force in August 2015.
The rules impact only third party debt collectors and debt buyers for now; attorneys are specifically exempted as long as they are acting in a legal capacity. In addition, creditors, process servers, and government officials are exempt from the new rules.
“We’re rolling out tough new regulations that protect borrowers and help crack down on illegitimate debt collection practices,” said New York Governor Andrew Cuomo. “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.”
Benjamin M. Lawsky, Superintendent of Financial Services, added, “The debt collection industry is filled with far too many unscrupulous actors willing to deceive and abuse consumers just to make a quick buck. These important reforms will provide significant, new protections for financially struggling New Yorkers from harassment and fraud, and help us root out these predatory practices.”
Upfront disclosures and debt validation requirements are at the heart of the new regulations.
Statute of Limitations Disclosures
Most significantly, debt collectors will need to provide disclaimers to the consumer if it is believed that the debt may be beyond the statute of limitations. The disclosure must state that the creditor and/or collector believes that the SoL has expired, that the consumer may stop any collection lawsuit filed on a time-barred account, and that the consumer is not required to pay but if they choose to do so, the SoL may restart, exposing the consumer to legal liability.
The rule text provides sample language, running four paragraphs, that satisfies the requirement. One passage from that language reads:
Even if the statute of limitations has expired, you may choose to make payments on the debt. However, be aware: if you make a payment on the debt, admit to owing the debt, promise to pay the debt, or waive the statute of limitations on the debt, the time period in which the debt is enforceable in court may start again.
The statute of limitations disclosure requirements go into effect March 3, 2015.
General Collection and Account-Specific Disclosures
Under the new rules, within five days after initial communication with a consumer, a debt collector must provide written disclosures that apprise the consumer of restricted behavior under the FDCPA, a list of funds exempt from judgment (such as Social Security payments), and enumerated information about the debt, specifically:
- The name of the original creditor; and
- An itemized accounting of the debt, including:
- the total amount of the debt due as of charge-off;
- the total amount of interest accrued since charge-off;
- the total amount of non-interest charges or fees accrued since charge-off;
- the total amount of payments made on the debt since the charge-off
The debt collector has the option to satisfy this requirement in the initial communication.
Debt Validation Requirements
If a consumer disputes a debt orally, the debt collector must make reasonable efforts to inform the consumer, in the conversation in which the dispute was communicated, how the consumer can make a “written request for substantiation” of the debt in writing and provide the consumer with such instructions in writing within 14 days.
Once a debt substantiation request is received, the debt collector has 60 days to provide written validation, during which time all collection efforts must cease. The written substantiation must include a copy of a judgment against the consumer or the original –or a copy of – signed contract, an account statement provided by the original creditor, a statement describing the complete chain of title of the account, and any records pertaining to previous settlement offers.
In order to give debt collectors time to gather the documentation required, the requirements for debt substantiation and account-specific disclosures will go into effect August 30, 2015.
Using Email to Communicate About a Debt
Consumers will have the right to communicate with collectors via their personal email if they so choose. The new rules specifically disqualify work email accounts. A collector can use email in future communications only if the consumer voluntarily provides a non-work email account and consents in writing to receive email communications. A consumer’s electronic signature constitutes written consent under this section.
The full text of the new rules can be found at http://www.dfs.ny.gov/legal/regulations/adoptions/dfsf23t.pdf.