Regulates debt collection practices; repealer

This bill will insure uniformity among the three laws. As a result, businesses will no longer be subjected to the uncertainty of enforcement inherent in a system governed by radically inconsistent statutes. In short, the bill would provide the business community with a detailed description of proscribed and acceptable practices so as to facilitate compliance with the law.

Moreover, New York State consumers will receive the additional protections now found in federal and New York City law. For example, consumers will have the right to obtain verification of disputed debts. Too often consumers are dunned for a bill which either they paid or did not incur or which reflect an incorrect amount. Many consumers, faced with the threat of impaired credit ratings and lawsuits, pay these incorrect debts simply to avoid further harassment. A debtor would also be protected from calls at specified unreasonable hours, calls at his place of employment without consent, obscene and abusive calls, threats of violence, fraudulent misrepresentations, and baseless threats.

Summary of provisions

This bill would repeal General Business Law, Article twenty-nine-H, the existing debt collection statute, and would substitute a new, more comprehensive Article 29-H (Fair Debt Collection Practices Act).

This proposal would prohibit debt collectors and creditors from: attempting to collect debts by threatening violence; falsely accusing any person of fraud or of a crime; making or threatening to make false accusations to a credit reporting agency; falsely threatening that non-payment will result in arrest; threatening action which the collector in his usual course of business does not in fact take; threatening to enforce a right with knowledge that the right does not exist.

Further, the bill would prohibit debt collectors and creditors from unreasonably oppressing, harassing, or abusing any person in an attempt to collect a debt by using profane or obscene language, making deceptive telephone calls, communicating at an unreasonable time (before 8:00 A.M. and after 9:00 P.M.) or at an unusual place. Debt collectors and creditors are prohibited, under the bill, from unreasonably publicizing information relating to any alleged debt, or from communicating with the debtor's employer except after judgment on the debt has been entered or to locate the debtor.

Under the bill, no debt collector or creditor could attempt to collect a debt or obtain information concerning a consumer by: using any name other than his own legal name (with limited exceptions); failing to disclose in any written communication that he is attempting to collect a debt; falsely representing that he has something of value for the consumer; failing to disclose the name of the person to whom the debt is owed; falsely representing the legal status of the debt; falsely representing that he is associated in any way with any government agency; falsely representing that the debt may be increased by attorneys' fees or other charges; or falsely representing that the sale or assignment of a debt will cause the consumer to lose a defense to it.

Debt collectors and creditors would be forbidden, under the bill, from collecting debts by communicating with the debtor without the debtor's written consent.

Collection agencies also would be prohibited from communicating with a debtor by telephone before sending a written communication to him. No debt collector or creditor could seek to locate a debtor by disclosing the debt to any third party, communicating with any third party more than once, or communicating orally without first communicating in writing to any third party.

Creditors and collection agencies would be required, under the bill to disclose in their first written communication to a consumer the amount of the debt, to whom the debt is owed, the consumer's right to dispute the validity of the debt, and the consumer's right to obtain verification of the debt.

Collection agencies must also disclose, at the consumer's request, the name of the original creditor if different from the current one, and the authority of the collection agency to initiate legal action on behalf of the creditor. In addition, collectors must disclose, in their initial letter to debtors, some of the most important consumer rights.

When the debtor resides in New York City, these disclosures must be made in both English and Spanish. Collection agencies and creditors would be afforded, under the provisions of the bill, a defense of bona fide error if it can be shown that they adopted reasonable procedures to avoid the violation.

The Attorney General would be authorized to bring an action to enjoin violations of the law and obtain monetary penalties ranging from $50 to $5,000 as well as costs and restitution. Individuals also could sue violators directly and obtain $50 or their actual damages, Whichever is greater, plus punitive damages and attorneys' fees. Creditors would not be liable, under the bill, for the act of their collection agencies if they can show they had no reason to believe the collection agency would violate the law or if they made a prior investigation of the collection agency's practices. The law would not apply to offices or employees of the United States or any state to the extent that the collection or attempt to collect any debt, constituted the performance of official duties.

Justification

Numerous complaints are made by consumer debtors victimized by malicious debt collection practices.

These people have been repeatedly and systematically subjected to obscene and harassing telephone calls, threats of physical violence, coercion, threats of criminal prosecution, fraudulent misrepresentations, and baseless threats of impaired credit standing and legal action. Consumer debtors also receive dunning letters which simulate legal process and misrepresent the consequences of non-payment.

The complaints are directed not only at debt collection agencies but also at banks, small loan companies, and retail merchants in a recently concluded case against a major loan company, that Numerous debtors, and their references, children, neighbors, friends, co-workers and employers were subjected to a barrage of illegal threats and verbal abuse, many debtors were threatened with death, serious physical injury, or sexual abuse. Telephone calls in the middle of the night were not uncommon.

Even the most vulnerable debtors: the elderly, the sick, and young children -- were not spared these abuses. Families had their home lives disrupted, their employment jeopardized, have been forced to disclose unlisted telephone numbers, declare bankruptcy and even relocate to avoid the daily harassment.

Under current State law, none of these people had the statutory right to sue for damages. In addition, a major loophole in current State law contains no provision to protect non-debtors from harassment. The proposed bill closes this gap by prohibiting the harassment of any person. In 1982, firms were charged with posing as law firms in their efforts to collect debts from consumers, as well as illegally charging interest. The state is currently forced to rely on the more specific provisions of the federal debt collection law to bar these practices.

In 1983, the State sued the nation's largest collection agency charging that it had engaged in repeated abusive and harassing collection practices. That suit shows that current debt collection laws are insufficient to deter such practices; the current State debt collection law does not allow for the recovery of fines in such actions. Under the proposed bill, collection agencies would be subject to monetary penalties for engaging in these activities. This would carry a strong deterrent effect. With skyrocketing interest rates, unemployment, inflation, and increasing consumer debt, such abuses are likely to increase, absent effective and consistent statutory protections.

Current State law does not adequately address the problem of debt collection abuse. Its terms are vague, overly broad and inconsistent with current federal and New York City laws. As a result, consumers are not fully protected and businesses are not clearly informed as to which collection practices are prohibited.

Creditors and collection agencies are protected under the bill against liability for mere technical violations; a good faith defense may be interposed. Moreover, the criminal penalty in the current law is eliminated by the bill and realistic civil remedies are substituted.

Twenty-five other states have enacted laws which provide debtors with a private right of action against debt collectors.

Enactment of the proposed bill would help restore New York's position as a leader in consumer protection. Until this comprehensive debt collection statute is enacted consumer debtors will continue to suffer violations of fundamental rights to privacy, dignity and freedom from unwarranted intrusions into their daily lives.

Legislative history

2013-2014 - S.83 2011-12: S.131 2010: S.7309/A.4237 2007-08: A.4032 (Lafayette) - Referred to Consumer Affairs & Protection

Fiscal implications

None.

Effective date

1st of September next succeeding the date it shall have become law.