New York Attorney General Eric T. Schneiderman today announced that his office reached a settlement with one of the largest debt collection firms in New York State to ensure that it does not file legal actions against New Yorkers to collect on payday loans.
Schneiderman said that Forster & Garbus had attempted to collect on payday loans from New Yorkers on behalf of an out-of-state firm called NCEP, LLC. Forster & Garbus told the AG’s office that it was had not been aware that the loans were payday loans, and after notification from Schneiderman, Forster & Garbus stopped its collection efforts.
Payday loans are illegal in New York.
“Payday loans take money away from hardworking New Yorkers who are forced to pay illegal and outrageous interest rates,” Schneiderman said. “Debt collection firms must make certain that the underlying loan is not a payday loan before filing a lawsuit, and they will be held responsible if they fail to do so. Ignorance is no excuse.”
Under the agreement, Forster & Garbus may not file an action against a New Yorker over a consumer credit transaction unless it first obtains a copy of the loan document and determines in writing that it is not a payday loan. When it receives a written complaint from a consumer that an existing judgment or settlement may have involved a payday loan, Forster & Garbus is required to obtain a copy of the loan document and, if the loan was a payday loan, vacate the judgment and pay restitution to the consumer for any amounts paid on the judgment.
Forster & Garbus was also required to pay $10,000 in costs and penalties.
Schneiderman’s press release noted that he has been tough on payday loans, sending a clear message that these predatory transactions will not be tolerated. Since January 1, 2011:
- Five debt collection firms that collected on payday loans were required to pay a total of $279,605.98 in restitution and $29,605.98 in penalties;
- A debt-buying company was required to reverse 8,550 negative reports it had made to credit reporting bureaus on New Yorkers and was prohibited from collecting on $3.2 million in payday loans taken out by New Yorkers;
- 12 companies agreed to refuse requests to repossess the vehicles of New Yorkers when the underlying loan is a payday loan; and
- Three companies and their owners were stopped from collecting interest on outstanding payday loans and required to provide refunds to New York borrowers who had paid back more than the principal of their loan plus the legal interest rate of 16%, and to pay $1.5 million in penalties.