The state of New York's court system announced new rules Tuesday designed to ban collecting debts that consumers already have paid off, did not incur or where the six-year statute of limitations has expired.
Chief Judge Jonathan Lippman said the new rules will reduce cases where abusive and aggressive collectors seek default judgments against consumers in court based on incomplete or erroneous documents. Often, these collection agencies have held debts that changed hands many times over several years.
Lippman said the new rules will "avert unwarranted default judgments," though New York's Unified Court System's Office of Court Administration (OCA) could not estimate how many. Some of the new provisions have been used to tighten up filing and documentation requirements in mortgage foreclosure proceedings.
"While creditors have every right to collect what is legally owed to them, the judiciary has an obligation to prevent inequitable debt collection practices in the courts," Lippman said in a statement released by his office.
The new rules and affidavits for default judgments will take effect on Oct. 1 except in debt buyer cases, where the rules will apply to default judgment applications involving debt purchased from an original creditor on or after Oct. 1. Effective July 1, 2015, however, the new affidavit requirements will apply in all debt buyer actions, regardless of when the debt at issue was purchased from an original creditor.
Lippman said there are more than 100,000 consumer debt filings in New York courts every year, most of them for obligations totaling several thousands of dollars on credit cards.
The new rules will:
Require creditors to submit affidavits containing detailed proof in support of default judgment applications;
Require that default applications contain the debtor's original credit agreement, a detailed accounting of each stop in the debt's chain of ownership and documentation that identifies the target of the default judgment as the correct debtor;
Require the creditor's attorney to file an affirmation that the statute of limitations has not expired;
Require a form of verification of the efforts made to notify the debtor of the impending default action.
DBA International, the debt-buying industry's association, reported Tuesday that it had provided OCA comments regarding the new rulesaimed at improving consumer protections while addressing concerns with proposed consumer credit collection case reforms published in April. DBAs comments were predicated on the uniform industry standards adopted in its national certification program.
DBA International officials report the association's dialogue with the OCA resulted in:
Delaying implementation of the rules on debt purchased before October 1 until July 1, 2015 - a concession that recognized the challenges associated with the retroactive nature of the rule. The industry will be able to operate under existing court rules while they obtain the necessary data and documents in the new prescribed format, DBA International officials said.
Clarifying that the court rules only applied to credit card debt.
Changing the definition of credit agreement to be more flexible, allowing various original documents to be used as evidence of the debt obligation, including the charge-off statement or the last activity statement.
Providing a clearer definition of original creditor and debt buyer.
Eliminating the pre-charge-off itemization requirement on account balances.
Allowing portfolio-level affidavits.
"DBA International supports the decision by the New York OCA and appreciates the opportunity to work with its staff to address DBA member concerns," said Bryan Faliero, DBA International president and director of Acquisitions for Sherman Capital Group. "Due to the hard work of DBA leadership and our New York consultant, DBA was successful in communicating our concerns which ultimately led to the incorporation of our recommendations into the final ruling."
Irwin Kirschenbaum, DBA board member and partner at Kirschenbaum & Phillips P.C., added, "New York debt buyers should be pleased with the hard work of DBA International which resulted in a favorable outcome in the OCA rules. This is good news for debt buyers in our state and the industry as a whole. However, with all new rules and regulations, there will be additional clarification needed."