On December 3, New York governor Andrew Cuomo announced the final version of the state Department of Financial Services (DFS) regulations governing debt collection actions by third-party debt collectors and debt buyers. The regulations contain a number of new requirements for third party debt collectors, including:
New / Enhanced Initial Disclosures
Within five days of the initial communication with a consumer in connection with collection of any debt, the regulations require that the debt collector (1) “provide the consumer clear and conspicuous written notification” that the debt collector is prohibited from engaging in “abusive, deceptive, and unfair debt collection efforts;” (2) give the consumer a specific notification that state or federal law may prohibit certain types of consumer income (e.g., social security, public assistance, and veteran’s benefits, among others) from being taken to repay the debt; (3) include the name of the original creditor; and (4) include an itemized accounting of the debt, including the total amount due, interest accrued, fees accrued and payments made.
Statute of Limitations Notice
The rules also require that the debt collector “maintain reasonable procedures” for determining the statute of limitations applicable to a debt that it is collecting, and, if the debt collector “knows or has reason to know” that the limitations period may have expired, the debt collector must provide “clear and conspicuous notice” to the consumer the the debt collector believes the statute of limitations may have expired before accepting payment. The regulations include specific language that, if used, will satisfy the notice requirement.
Substantiation of Consumer Debts
The rules also require that, if a customer disputes the validity of a debt either orally or in writing, the debt collector must inform the consumer that he or she can request substantiation of the debt and how to do so. The debt collector must substantiate the debt within 60 days of receiving a request for substantiation, and must cease collection attempts until written substantiation has been provided (the regulations also list documents that properly may be used to substantiate the debt). The debt collector also must maintain documentation of the consumer’s request for substantiation and the documents provided in response to the request until the debt is “discharged, sold, or transferred.”
Written Confirmation of Settlement Agreements
Debt collectors must also provide written confirmation of any debt settlement agreements or payment plans. If the consumer agrees to a repayment schedule, the debt collector must send a quarterly accounting of the debt while the consumer makes payments, and written confirmation that the debt has been satisfied within 20 days after the debt is repaid. The written confirmation must contain the original creditor and account number.
Finally, the regulations permit consumers and debt collectors to communicate via email at the consumer’s election.
The regulations, promulgated pursuant to the first use of DFS’ “gap authority” to regulate previously unregulated providers of financial products and services, will be effective March 3, 2015 (except that the provisions governing the initial notice and the debt substantiation will become effective August 30, 2015). Violations of the regulations are punishable by civil monetary penalties. The regulations exceed the federal requirements under the Fair Debt Collections Practices Act (FDCPA) in a number of ways, including a longer window for substantiation of the debt, and enhanced initial disclosures. Coming, as they do, at a time when the CFPB is also crafting its own debt collection rules, the DFS regulations have prompted speculation since they were initially proposed that they may serve as a model for the CFPB.
Whether or not the CFPB or other states adopt similar requirements, debt collectors subject to the new rules must ensure their procedures comply with these new requirements in order to avoid enforcement action.