Creates a private right of action for improper debt collection procedures

BILL NUMBER:S4238A

Title of bill

An act to amend the general business law, in relation to allowing a private right of action for improper debt collection

Summary of specific provisions

This bill amends section 602 of the general business law to create a private right of action for a debtor for improper debt collection procedures based on the following: 1. Any person who violates this article shall be guilty of a misdemeanor, and each violation shall be a separate offense. 2. A debtor can bring a private right of action for violations of this article. The person shall be liable to the debtor for any actual damages the debtor sustained as a result of the violation of the article.

Justification

This bill adds significant new protection to debtors in this state. It expressly provides for a private right of action in debt collection cases. Given that a private right of action was not expressly provided for in article 29-H of the General Business Law, which regulates debt collection practices, intermediate state courts decided the issue with varying results. In I.F.C. PERSONAL MONEY MANAGERS V. VADNEY, 133 Misc. 2d 841, 508 N.Y.S. 2d 845 (Sup. 1986), and KOHLER V. FORD MOTOR CREDIT CO., 112 Misc. 2d 480, 447 N.Y.S. 2d 215, a private right of action was found where creditors employed improper debt collection practices. However, in LANE V. MARINE MIDLAND BANK, 112 Misc. 2d 200, 446 N.Y.S. 2d 873, the court held that there is no private right of action in debt collection cases. A private right of action could arguably have been brought in debt collection actions under different provisions of the General Business Law. However, the New York Court of Appeals in VARELA V. INVESTORS INSURANCE HOLDING CORP., 81 N.Y. 2d 958, 598 N.Y.S. 2d 761 (1993), definitively settled the issue. This bill overrules the VARELA decision wherein the Court held that article 29-H of the General Business Law, which regulates debt collection practices, does not create a private right of action but authorizes only the District Attorney and the Attorney General to commence an action for violation of its provision. The Court's rationale was based on the Legislature's failure to expressly provide for a private right of action in this article, while providing for such in other provisions. Presently, debtors are being harassed by creditors through their friends and relatives and also at their work place. Creditors are also using scare tactics towards the children of the debtors as a means of a collection procedure. As a result, many children become afraid of being homeless or having their parents taken away from them. On the other hand, some debtors are faced with losing their jobs because they are receiving too many harassing phone calls at their work place. Creditors continue to harass debtors by any means necessary, because they can get away with it. This bill shall reduce the frequency of harassment: by creditors towards debtors by expressly creating a private right of action and imposing fines for improper debt collection procedures.

Effective date

This act shall take effect on the thirtieth day after it shall have become a law.