Legislation Aims to Curb Abusive Debt Collection Practices

June 29, 2009
Assemblywoman Rhoda Jacobs (D-Flatbush) announced the Assembly passed a package of bills she supported that will protect consumers from improper debt collection practices and implement penalties for those who violate the law.

Ms. Jacobs said this package of bills will help protect debtors from unscrupulous debt collection practices, punish debt collectors who violate the law, and give people the information they need to get back on firmer financial ground.

Informing consumers about their rights

Consumers who cannot manage their debt may have their financial information turned over to debt collectors. Debt collectors’ profit margin depends on how much they can reclaim from a debtor, and some use deceitful practices or practices that border on harassment, both of which violate the law, noted Jacobs. An effective way to end abuse and provide benefits to consumers and businesses is to inform consumers of the limitations placed on debt collectors by New York law.

Legislation included in the package of bills would provide a “Debtor’s Bill of Rights” to consumers who are in default (A.271-A). The notice would contain information such as when a debt collector may contact a debtor, as well as the fact that a debt collector cannot threaten to contact your employer unless they have obtained a judgment against you.

“Consumers deserve to be treated fairly and reasonably, even when they have outstanding debts,” Assistant Speaker Jacobs said. “At the same time, if outstanding debts are not paid, the cost of business increases – hurting business, competition and the consumer. By providing debtors a written notice of their rights, we can curb the abuses of the law and give consumers the confidence to deal with their financial problems.”

Giving consumers the right to take action for improper debt collection

Presently, debtors often are harassed by debt collectors through their friends and relatives, and also their work place, as a means of collection. The Assembly passed legislation intended to reduce harassment by debt collectors by allowing debtors a private right of action in debt collection cases (A.3532-A). Any person found guilty of improper debt collection practices under this legislation will face potential reparations, including the payment of actual damages, punitive damages and attorneys’ fees.

“Aggressive collection tactics, outright harassment and dirty tricks intended to beat debtors into submission simply need to stop,” said Jacobs. “Debt collectors shouldn’t be able to harass individuals by any means necessary – without any consequences.”

Requiring debt collection agencies be licensed by the state

Federal and state laws regulate how debt collectors may communicate with debtors, and prohibit the use of unfair collection practices. Despite these legal protections, the number of consumer complaints regarding methods of debt collection continues to rise. To protect consumers and maintain a high level of integrity in the debt collection industry, the Assembly passed legislation requiring third-party debt collectors and debt buyers to obtain a license from the Department of State (A.3926-C). Licenses would be valid for two years and cost $500.

Other provisions of the bill include:

  • requiring all licensed applicants to submit a summary of the methods used to confirm the validity of the debts being collected, their record-keeping policy, and whether debts will be sold;
  • authorizing the secretary of state to refuse an issuance of a license to any applicant found to have violated New York’s Fair Debt Collection Practices Law or the federal Fair Debt Collection Practices Act;
  • requiring debt collection agencies to obtain surety bonds between $10,000 and $75,000, depending on the number of people employed by the agency; and
  • imposing penalties on violators; debtors who have been sued by an unlicensed debt collection agency can move for dismissal of the suit.

Enhancing consumer protections and closing gaps in current law

Another bill Assemblywoman Jacobs supported would implement several new and enhanced consumer protections in debt collection proceedings, including reducing the statute of limitations on consumer credit actions from six years to three years and barring debt collectors from trying to collect debts on which the statute of limitations has expired (A.7558-A).

Also included in the package is legislation stating that debt collection agencies that are attempting to collect outstanding debts of deceased individuals from surviving family and household members must inform those individuals that they are not legally obligated to repay the debts of the deceased (A.7889-B).

“Recent investigations have shown that debt collection companies often pursue debt collections after the legal statute of limitation has expired, or worse, after the debtor is known to be deceased,” Jacobs said. “In this precarious economic climate, it is unacceptable that deceptive debt collectors are seizing every opportunity to squeeze the last penny out of those who are desperately trying to pay their bills.”

Aligning New York with federal law

The Assembly also passed legislation that would implement protections against improper and abusive debt collection practices and align New York law with the federal Fair Debt Collection Practices Act (A.8840-B). Specifically, the bill would:

  • provide that creditors and debt collectors may only communicate with debtors between the hours of 8 a.m. and 9 p.m. local time;
  • require creditors and debt collectors to send notice to the last known address of a debtor when a debt is being sold or transferred;
  • govern how debt collectors communicate with a person other than the consumer for the purpose of collecting a debt, and how debt collectors communicate with the consumer after the institution of debt collection procedures;
  • prohibit debt collectors from engaging in threatening or abusive conduct in an attempt to collect a debt;
  • require debt collectors to cease collection activities until the collector obtains and mails verification of the debt if the debt is disputed in writing by the consumer; and
  • provide for a private right of action for damages against violators.

“The debt collection industry has changed significantly in recent years – debts are now often sold to third parties without consumers’ knowledge, leaving consumers to determine the validity of collection claims. Creditors and debt collectors often fail to inform consumers of important details related to the debt. By aligning New York and federal law, we are providing a consistent set of rules for debt collectors to follow, while giving consumers adequate remedies for stopping abusive practices,” concluded Jacobs.