Requires debt collection agencies to be licensed by the state

The purpose of this bill is to protect consumers against unfair and deceptive debt collection practices and maintain a high level of integrity and professionalism in the debt collection industry, by requiring third party debt collectors and debt buyers to obtain a license from the Department of State.

Summary of specific provisions

This bill would require third party debt collection agencies, including those who buy and sell consumer debt, to obtain a license by October 1, 2013 from the Department of State (DOS). Licenses would cost $500 and be valid for two years.

In addition to the submission of the usual license application information, such as business name, address and telephone number, applicants would be required to submit a summary of the methods used to confirm the validity of the debts it seeks to collect, the applicant recordkeeping policy, and whether the applicant intends to sell debts.

The Secretary of State would be authorized to refuse to issue a license to any applicant found to have violated New York's Fair Debt Collection Practices Law (Article 29-H of the General Business Law) or the federal. Fair Debt Collection Practices Act. The Secretary would also be authorized to perform investigations and compel the attendance of witness and a licensed agencies' books and records.

Debt collection agencies would be required to obtain surety bonding. The amount of the bond would be between $10,000 and $75,000, depending on the number of people employed by the agency. The bond would be conditioned on compliance with this article and the payment of all fines or investigatory costs. Agencies would also be required to include the license number issued by the DOS on any advertisement, letterhead, receipt or other printed matter produced by the agency. The DOS would be required to publish a registry of all licensed debt collection agencies on its website.

The Attorney General would be authorized to enforce the provisions of this article by seeking an injunction against a violator. The bill also provides for a civil penalty of between $100 and $10,000 for each violation.

The bill provides for a private right of action for consumers subject to unlicensed collection activity for actual damages or three thousand five hundred dollars, whichever is greater, or both. The court may, in its discretion, increase the award of damages to an amount not to exceed three times the actual damages up to ten thousand dollars, if the court finds the defendant willfully violated this article.

Lastly, the bill would amend the Civil Practice Law and Rules to allow debtors who have been sued by an unlicensed debt collection agency to move for dismissal of the suit based on the fact that the agency is not licensed pursuant to this article.

Justification

Federal and state law regulate how debt collectors may communicate with debtors and prohibit the use of certain threatening, deceptive and unfair collection practices. Despite these legal protections, the number of consumer complaints regarding debt collection practices continue to rise. Consumer complaints received by the Federal Trade Commission regarding third party debt collectors Few for the thirteenth consecutive year in 2010, and consumers filed with the Commission more complaints against third party collectors than against any other specific industry. The New York City Department of Consumer Affairs recently announced that debt collection complaints topped the Department's annual complaint List for the first time in the agency's forty-year history in 2008.

While the majority of those engaged in the business of debt collection are honest and ethical in their dealings, there is a minority of unscrupulous collection agencies in operation that practice abusive tactics. Due to the sensitive nature of the information used in the course of such agency's everyday business, and the vulnerable position consumers find themselves in when dealing with these agencies, it is imperative that the State protect the interests, reputations and fiscal well-being of its citizens against those agencies that abuse their privilege of operation.

Third party debt collection agencies are currently required to be licensed in at least twenty-nine states, as well as, the cities of Buffalo and New York. This bill would provide all New York consumers with the protections currently afforded to those who reside in Buffalo and New York City.

Prior legislative history

2007-2008: A.8153-A - Passed Assembly 2009-2010: S.7071-A/A. 3926-D - Passed Assembly 2012: Referred to Consumer Protection

Fiscal implications for state and local governments

To be determined.

Effective date

This act shall take effect on the one hundred eightieth day after it shall have become a law; provided, however, that effective immediately, the addition, amendment and/or repeal of any rule or regulation necessary for the implementation of this act on its effective date is authorized and directed to be made and completed on or before such effective date.