New York Attorney General Eric Schneiderman has settled with debt collector Forster & Garbus regarding the firm's collection of payday loans.

Under an agreement announced Friday, Forster & Garbus will pay a $10,000 penalty for filing claims against consumers who were behind on paying off the short-term, high-interest loans. The firm also agreed to pay restitution costs to consumers for existing cases involving payday loans.

"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," Schneiderman said in a press release Friday. "Ignorance is no excuse."

Payday loans violate a state interest-rate cap of 16% on loans from unlicensed firms, the attorney general said in the release. Payday loans often carry triple-digit interest rates, when calculated on an annual basis.

His office found that Commack, N.Y.-based Forster & Garbus initially received the collection requests from a firm called NCEP. No additional information was provided about NCEP.

Forster & Garbus was unaware that some of its collections claims contained payday loan debt, according to the release. The accounts in question were the result of a coding error from a client, said Ron Forster, a senior partner at Forster & Garbus, in an interview.

"We don't want to do payday loans, and we don't do payday loans," Forster said. "There's a lot of publicity around this, but I'm in agreement with the attorney general."

As part of the settlement, Forster & Garbus agreed to verify in writing that future collection claims do not contain payday loan debt.

The settlement comes just days after Cyrus Vance, the district attorney for Manhattan, filed criminal charges against a payday loan scheme based in Tennessee. Vance charged the payday lender with violating usury laws.

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