Relates to provisions concerning debt collection procedures

Summary of provisions

Section 1 of the bill amends Article 29-H of the General Business Law (GBL), Debt Collection Procedures to do the following:

* Amend GBL § 600 to revise the definitions of "consumer debt," "debtor," and "creditor," and to define "consumer," "communication," "debt collector," "location information," and "verification of the debt."

* Amend GBL § 601 to make it a prohibited practice for creditors to communicate with the debtor or his family or household except between 8:00 A.M. and 9:00 P.M.

* Renumber GBL § 602 (violations and penalties) as § 606, and create a new §602 to require creditors to send notice to the last known address of a debtor when his or her debt is sold or transferred, and to provide purchasers of a debt with a consumer's written notification that he or she disputes the debt.

* Renumber GBL § 603 (severability) as § 607 and create a new GBL § 603 to delineate certain prohibited practices by a debt collector, including among others: (1) acquiring location information regarding a consumer without properly identifying him or herself; (2) communicating with a consumer at inconvenient times or with excessive frequency; (3) communicating directly with a consumer known to be represented by counsel; (4) communicating with a consumer who had notified the collector of his or her refusal to pay, except for certain limited purposes; (5) engaging in harassment or abuse; (6) making false or misleading representations; (7) collecting an amount not expressly authorized by the agreement creating the debt; (8) soliciting a post-dated instrument for the purpose of threatening or instituting criminal prosecution; (9) causing charges to be made to any person for communications by misrepresenting the true purpose of the communications; (10) communicating with a consumer about a debt by postcard; (11) communicating with a consumer about a debt, after instituting debt collection procedures, without identifying him or herself; and (12) designing, compiling or furnishing a form with knowledge that it would create the false belief in a consumer that a person other than the creditor is participating in the collection. This section also sets forth appropriate procedures for the validation of debts by debt collectors.

* Add a new GBL § 603-a to require debt purchasers and their agents to send notice to the last known address of a debtor that his or her

debt is being sold or transferred, and to provide purchasers of a debt, and debt collectors, with a consumer's written notification that he or she disputes the debt.

* Add a new GBL § 603-b to provide for a private right of action to recover two thousand five hundred dollars and actual damages for a violation of this article. This section also provides that a debt collector may not be held liable in any action brought under this article if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.

Section 2 of the bill provides that it would become effective on the succeeding January 1 after it becomes law except that GBL §§ 602, 603(7) and 503-a shall apply only to debts incurred on or after the effective date of such sections.

Existing law

General Business Law Article 29-H prohibits certain practices in regard to debt collection. Among other requirements, the Article bars a principal creditor, which is defined to include both a principal first issuer of credit, and any debt collector that is assigned the debt from a principal creditor, from: (1) simulating a law enforcement officer, or a representative of any governmental agency of the state of New York or any of its political subdivisions; (2) knowingly collecting attempting to collect, or asserting a right to any collection fee, attorney's fee, court cost or expense unless legally chargeable against the debtor; (3) disclosing or threatening to disclose information affecting the debtor's reputation for creditworthiness with knowledge or reason to know that the information is false; (4) communicating or threatening to communicate the nature of a consumer claim to the debtor's employer prior to obtaining final judgment against the debtor; (5) disclosing or threatening to disclose information concerning the existence of a debt known to be disputed by the debtor without disclosing that fact; (6) communicating with a debtor or any member of his family or household with such frequency or at such unusual hours or in such a manner as can reasonably be expected to abuse or harass the debtor; or (7) threatening any action which the principal creditor in the usual course of his business does not in fact take; (8) claiming, attempting or threatening to enforce a right with knowledge or reason to know that the right does not exist; or (9) using a communication which simulates in any manner legal or judicial process or which gives the appearance of being authorized, issued or approved by a government, governmental agency, or attorney at law when it is not.

Legislative history

01/13/11 REFERRED TO CONSUMER PROTECTION 01/04/12 REFERRED TO CONSUMER PROTECTION 01/05/12 AMEND AND RECOMMIT TO CONSUMER PROTECTION 01/05/12 PRINT NUMBER 1822A

Statement in support

Many consumers today are finding themselves the subjects of debt collection proceedings. Creditors and debt collectors in pursuit of

collection, often fail to inform the consumers of the important details related to the debt, such as where the debt originated, or the name and address of the original creditor. This creates a frustrating process for a debtor who has disputes with all ,or part of the claimed debt. An exacerbating factor during this process is that consumers, who are struggling and faced with the inability to payoff a loan or credit card bill, often are subjected to persistent and sometimes abusive debt collection tactics.

In the past four years, the CPB has received approximately 3,894 debt collection complaints and/or inquiries. This bill would provide consumers with adequate recourse to address the improper practices cited in those complaints, while still allowing businesses to collect upon the debts owed to them.

The debt collection industry has changed significantly in the more than three decades since Article 29-H of the General Business Law was enacted in 1973, and the federal Fair Debt Collection Practices Act (FDCPA) was enacted in 1977. It was recently noted in a Federal Trade Commission (FTC) report that, "The most significant change in the debt collection business in the past decade, however, has been the advent and growth of debt buying (Le. the purchasing, collecting and reselling of debts in default). It The report furthers that the FDCPA should be amended to reflect the advent and expansion of debt buying industry, and require debt collectors to have and convey to consumers more information in validation notices. To address this concern, the FTC recommends that the FDCPA be amended to require that debt collectors obtain and provide in the "validation notices" they send to consumers: (1) the name of the original creditor; and (2) an itemization of (a) the principle, (b) the total Of all interest, and (c) the total of all fees and charges that make up the debt."(1)

This bill would address these problems by incorporating into New York law many aspects of the FDCPA. It would add to the terms of that Act the requirement that debt collectors provide verification of a consumers debt upon request, and also notice to consumers when their debt is sold. This would allow consumers to determine the source and legitimacy of debt collection notices they receive from third parties with whom they have not had prior contact.

The current outdated laws regulating the debt collection industry, combined with the unprecedented increase in consumer debt has created a perfect storm for consumers. The latest United States statistics indicated the total amount of consumer debt, which does not include any debt secured by real estate, is nearly $2.6 trillion dollars.(2) When extrapolated, this works out to be nearly $8,500 in debt for every man, woman and child that lives in the United States.(3)

The tragic impact of this debt load was exemplified recently in the NBC Dateline story, The Debt Trap, which embodied the many scenarios faced by consumers who have become ensnared in debt collection proceedings, including those consumers who never incurred or owed such debt. It also depicted the abuse and harassment tactics some debt collectors employ against consumers to collect debts. It most importantly provided the landscape and desperation of consumers struggling today to pay their debts while facing or experiencing

layoffs, mortgage foreclosures, and severely decreased investment assets.

In addition, a recent New York Times article (4) featured the rapidly increasing trend of creditors and banking institutions using the State's civil court system as a debtors' court, with its lure of a quick and often easy opportunity to obtain default judgments in their collection efforts. The article explains that lawsuit filings involving debt collections have nearly tripled since 2000. Court officials project that of those filings, 350,000 in the New York City Civil Court this year alone will involve debt on credit cards. This increased activity, combined with the reality of financially strapped consumers struggling to meet their basic needs, creates a perfect storm for greater economic turmoil.

Consumers need recourse against nefarious debt collection practices, and deter unsubstantiated debt collection lawsuits. Thus, the statute would also provide consumers with a private right of action to enforce the terms of this statute, and the right to recover damages of $2500 per wrongful act. The FDCPA provides for only $1000 per violation, but such damages have not been revised to reflect inflation since the FDCPA was first enacted in 1977. This bill would provide consumers with a remedy under New York law that reflects such change, and that provides an adequate deterrent to misconduct. Like the FDCPA, this bill would allow a prevailing plaintiff to recover attorneys' fees.

By largely aligning New York and federal law, this bill would provide a consistent set of rules for debt collectors to follow, while giving consumers adequate remedies for stopping abusive practices.

Budget implications

None.

Effective date

This bill would become effective on the first of January next succeeding the date on which it shall have become a law, except that GBL §§ 602, 603(7) and 603-a shall apply only to debts incurred on or after the effective date of such sections.

Footnotes

(1) Collecting Consumer Debts: The Challenges of Change, FTC Workshop Report, pages iv-v, (February 2009).

(2) Consumer Credit Statistics, Federal Reserve Board (May 7, 2009).

(3) Consumer Debt Statistics, Money-zine.com. (May 2009).

(4) In Civil Court, One Nation, Under Debt, New York Times, (October 11, 2008).