At a recent DBA International Symposium on New York State’s debt collection rules and regulations, New York Department of Financial Services (DFS) Executive Deputy Superintendent Joy Feigenbaum clarified certain provisions in the new debt collection regulations that had prompted questions from many in the industry. Ms. Feigenbaum also discussed how the DFS regulations, enacted under Title 23 of the New York Codes, Rules, and Regulations, would comport with any similar rulemaking by the Consumer Financial Protection Bureau. A summary of her presentation follows.
Rule 1.2 requires the debt collector, within five days of the initial communication concerning the collection of a debt, to disclose that certain types of income are exempt from collection if a money judgment is entered against the consumer. The industry has raised concerns that including this exempt income language on communications to consumers whose debts are barred by the statute of limitations could expose them to liability under the Fair Debt Collection Practices Act (FDCPA).
Specifically, consumer advocates could argue such language constitutes a threat to file a lawsuit on out-of-statute debt, which is an FDCPA violation. Ms. Feigenbaum reaffirmed, however, that this language is required for out-of-statute debt communications. Accordingly, it is prudent for debt collectors to include a disclaimer that makes clear that this language should not be construed as a threat to sue, but rather is required by the State.
Ms. Feigenbaum also discussed the requirement in Rule 1.2 that both the prohibition from engaging in abusive, deceptive, and unfair debt collection efforts and the exempt income language be “clear and conspicuous.” She emphasized that this language should appear on the first page of the notice, and that placing it on the back with an instruction on the first page urging the consumer to turn the page is “insufficient.”
Rule 1.4, which governs the debt collector’s obligation to provide written substantiation of a charged-off debt within 60 days of receiving a request for one, prompted additional concerns from the audience. Ms. Feigenbaum reiterated that the DFS expects debt collectors to issue a satisfaction of the debt to the consumer if written substantiation cannot be provided within the 60-day period. However, the DFS requirement poses a quandary for a third-party collector, which does not have the authority to issue satisfactions for debts owned by the creditor or another holder.
Ms. Feigenbaum also stated that a third-party collector that could not substantiate the debt would not be in compliance with Rule 1.4 by merely closing the account, sending the file back to the creditor, and notifying the consumer of the transfer. The DFS clearly expects debt collectors to obtain the required records to substantiate before attempting to collect on charged-off debt. It is critical that debt collectors have the appropriate policies and procedures to ensure they are confirming receipt of the records needed to substantiate the charged-off debt immediately upon transfer of the debt.
Rule 1.4 also requires the debt collector to retain “evidence of the consumer’s request for substantiation” until the debt is discharged, sold, or transferred. Ms. Feigenbaum clarified that in the event of a telephonic request for substantiation, the debt collector does not have to keep an actual recording of the call, so long as the file contains a notation reflecting that the consumer called to request substantiation of the debt.
Rule 1.5 requires the debt collector, within five business days of agreeing to a debt payment schedule or other debt settlement agreement, to provide the consumer with a written copy of the schedule and a notice that certain income streams are exempt from collection. Ms. Feigenbaum clarified that this provision not only covers settlements that satisfy the debt, but also includes any payment schedules that partially pay the debt.
Finally, Ms. Feigenbaum does not think that any CFPB debt collection rules would be inconsistent with the DFS’ regulations. Referring to the DFS as a “close partner” of the CFPB, she indicated that the DFS communicated closely with the CFPB throughout its rulemaking process. As we have written previously, we anticipate that while the CFPB may adopt certain portions of the DFS regulations, it is likely to go even further in other respects.
Attorneys in Ballard Spahr’s Consumer Financial Services Group regularly advise clients on compliance with the FDCPA and state debt collection laws and defend clients in FDCPA lawsuits and enforcement matters. They also prepare clients for their first Consumer Financial Protection Bureau examinations. The Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance. Further, the Group regularly defends debt collectors and debt buyers in individual and class action litigation brought in New York state and federal courts, as well as enforcement actions brought by the DFS, New York Attorney General, and New York City Department of Consumer Affairs.
For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or email@example.com, John L. Culhane, Jr., at 215.864.8535 or firstname.lastname@example.org, Justin Angelo at 646.346.8012 or email@example.com, or Heather S. Klein at 215.864.8732 or firstname.lastname@example.org.
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