Forster & Garbus, a Commack, N.Y.-based collection law firm, agreed Friday to settle charges that it illegally sued to collect on payday loans from New Yorkers.
The settlement with the New York attorney general's office bans Forster & Garbus from filing to collect against any resident of the state without obtaining a copy of the loan document to determine if it's a payday loan. The highest legal interest rate in New York is 16% for most lenders not licensed by the state, making most payday loans illegal, according to the attorney general's office.
Forster & Garbus also will pay $10,000 in costs and penalties as part of the settlement.
New York Attorney General Eric Schneiderman's office said a company called NCEP LLC placed consumer debts for collection with the firm. The debts included payday loans and, on at least five occasions, Forster & Garbus attempted to collect on those loans.
The firm notified the attorney general's office that it had not been aware the loans were payday loans.
Since January 1, 2011, Schneiderman's office has issued several enforcement actions involving payday loans, so-called predatory loans, various lenders and collection firms:
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;
Twelve 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.
The attorney general's office has been active in pursuing other enforcement actions against accounts receivable management firms. It cracked down in May on two of the largest consumer debt buyers after an investigation revealed they had failed to ensure claims were filed within appropriate time limits under state law.
Portfolio Recovery Associates, now known as PRA Group, and Sherman Financial Group, agreed to drop collections on an estimated $16 million in judgments. PRA agreed to pay $300,000 and Sherman Financial agreed to pay $175,000 in civil fines and other costs. Neither company admitted wrongdoing.
PRA and Sherman Financial file thousands of collection lawsuits in New York each year, according to state officials. The New York Supreme Court in 2010 affirmed that collection firms must adhere to state-imposed time limits. The two debt buyers appeared to have followed the law for new cases while still collecting on more than 2,400 older judgments.