Enacts the "consumer credit fairness act"

The bill would reduce the statute of limitations on consumer credit actions from six years to three years. The bill would also bar debt collectors from collecting debts on which the statute of limitations has expired.

It would require that an additional notice of a pending consumer credit action be mailed to the defendant by the clerk of the court. This is required in New York City and the bill would adopt this requirement statewide.

The bill would permit defendants in consumer credit actions to raise improper service as a defense in their answer and preserve that defense for trial without having to file a separate motion to dismiss within 60 days as under current law.

To prevent the entry of default judgments on claims which have no merit, the bill would require applications for default judgments in consumer credit actions to include specific pleading requirements. These include an affidavit by the original creditor of the facts constituting the debt, the default in payment, the sale or assignment of the debt, and the amount due at the time of sale or assignment; (ii) for each subsequent assignment or sale of the debt to another entity, an affidavit of sale of the debt by the debt seller, completed by the seller or assignor; and (iii) an affidavit of a witness of the plaintiff, which includes a chain of title of the debt, completed by the plaintiff or plaintiff's witness. The bill will also require that applications for default judgments in consumer credit actions to include a statement that after reasonable inquiry, the creditor has reason to believe that the statute of limitations has not expired.

Justification

Abusive debt collection lawsuits exploit current gaps in our state's civil procedure laws and rules. The proposed legislation helps to fill those gaps.

It will reduce the statute of limitations for consumer credit actions from six to three years. States with three year statutes of limitation include: Arizona, Arkansas, Delaware, Kansas, Louisiana, Maryland, Mississippi, Montana, and the District of Columbia. Pennsylvania has a two year statute of limitation. The public purpose for reducing the statute of limitation is to require creditors to reduce their claims to judgment while memories are fresh and records are still available. The bill would also extinguish the right to collect the debt after the statute of limitation has expired. This is a reaction to the now common practice of selling time-barred debt. States with similar requirements include Wisconsin and Mississippi.

It would adopt statewide the additional notice requirements which are already in place in New York City to ensure that more New Yorkers receive actual notice of debt collection actions. It will require court papers to include basic information about the debt to ensure that New Yorkers will be better able to identify the debt or account on which they are being sued. This notice requirement will be sent in both English and Spanish. The requirement that certain notices be bilingual can be found in other areas of New York Law including Section 812(5) of the Family Court Act; Section 530.11(6) of the Criminal Procedure Law; Section 1803-A(c) of the New York City Civil Court Act and Section 401(d) of the New York City Civil Court Act.

To ensure that default judgment applications in debt collection lawsuits are evaluated on the merits, it will require proof of the complaint's allegations to be submitted as part of the application for a default judgment to protect New Yorkers against default judgments on debts for which the plaintiff does not possess the requisite proof.

The proposed legislation will protect defendants from unknowingly waiving the legitimate defense that a debt is past the statute of limitations or that they were improperly served. The public purpose for preventing the waiver is that debt collection actions are rife with poor service and default judgments which were obtained after the statute of limitations had expired. To address the latter problem, the bill will require that applications for default judgments in consumer credit actions include a statement that the creditor has reason to believe that the statute of limitations has not expired. Since over 300,000 default judgments were entered in the New York City Civil Court last year, this common sense pleading requirement will now be required.

Legislative history

New bill.

Fiscal implications for state and local governments

None noted.

Effective date

January 1, after becoming law. Section three of the bill, which shortens the statute of limitations, will take effect 180 days after becoming law.