New York regulators on Wednesday rolled out new debt collection rules requiring collectors, among other things, to produce loan documents or a court judgment if requested.
New York Superintendent of Financial Services Benjamin Lawsky said the new regulations will help guide an industry that has gone largely unregulated despite thousands of consumer complaints each year.
DBA International, the largest association representing debt buyers, has praised the efforts as a method to both providing better protection for consumers while also ensuring the collection industry is allowed to legitimately collect debts.
Industry leaders have longed complained about the large number of illegal collection operations that continue to give the entire industry a bad reputation.
Many of the rules will go into effect in March. Certain disclosure, debt verification and communication requirements will go into effect in August. Most of the new requirements were announced earlier in the years, Collections & Credit Risk reported.
The official text of the new rules is available here.
In New York state this year, officials have received more than 20,000 complaints about debt collection practices. Lawsky has repeatedly said the industry is filled with too many unsavory people who will do whatever it takes to abuse and deceive consumers, such as trying to collect debts that already have been paid, settled or have surpassed the statue of limitations, which is typically six years.
The new rules supported by Gov. Andrew Cuomo's administration also will require collectors to account for all interest and fees included in the debt and inform consumers when the statute of limitations has expired.
ACA International, the largest association representing collection agencies, has commented on the plan and urged Lawsky and his department to work to eliminate many "unduly economic burdens and to refrain from issuing a final regulation before the Consumer Financial Protection Bureau has an opportunity to address many of the areas addressed in the proposal in its anticipated rulemaking."
ACA International is advising collectors that collect in the state of New York to examine the new rules and begin preparing compliance plans to meet the requirements. ACAs Legal Department will be reviewing the final regulation and issuing a compliance alert to members in the near future, the association reported.
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 previously reported that the association's dialogue with regulators resulted in:
Delaying implementation of the rules on debt purchased before October 1, 2014 until July 1, 2015 - a concession that recognized the challenges of 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.