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New York looks to change debt collections

Published Date:
Jan 28, 2014

CPAs may be able to give clients facing debt collectors some good news, if New York state’s Department of Financial Services (DFS) gets its way. The state court system recently put out a proposal to require standardized affidavits in consumer credit actions seeking default judgments. DFS Superintendent Benjamin M. Lawsky responded with a comment letter supporting that change—and making additional debtor-rights suggestions, both in litigation situations and in prelitigation.

Lawsky would like to see an end to the “robosigning” of affidavits in order to make sure debt collectors actually are familiar with a particular consumer’s file. (This practice came under fire during the mortgage crisis.) Also proposed are requirements that debt collectors include essential details in the affidavits and attach documentation regarding the debt. Litigation should not be allowed, Lawsky believes, until consumers receive a precomplaint notice.

But even before cases reach the courts, Lawsky would like to see restraints on what debt collectors can do. He wants to require collectors to provide additional information to consumers before trying to collect a debt. When consumers dispute the validity of a debt—even over the phone—Lawsky believes that collectors should have to provide documentation that the debt is valid, such as copies of signed contracts. They would also have to disclose to consumers their rights under the Exempt Income Protection Act, which puts certain sources of income beyond the reach of collectors.

Longstanding problems—with new wrinkles
The reform of debt collection practices goes back to the day when debtors’ prisons were common. But even though those days are gone, Lawsky sees additional problems in today’s debt markets. In his letter, he says that the debt-buying market is rapidly growing—debts are solid for “pennies on the dollars,” and the purchasers, who have little documentation, aggressively pursue payment. Consumers find that collectors are going after the wrong person, or have the wrong amount, as they have little backup information.

Lawsky says that he supports the rights of businesses to collect actual debts, and he believes that consumers should pay what they owe. But under the current system, too many debt collectors “abuse the justice system and use the courts as a tool for collecting unverifiable debts from consumers who never had a fair opportunity to contest them.”

A federal issue, too
Lawsky wanted to show these are not just New York ideas. To back up his claims, he cited a Federal Trade Commission (FTC) report from February 2009 titled, Collecting Consumer Debts: The Challenges of Change, A Workshop Report. The report described the dangers of technology, noting that although debt collectors should be allowed to use new technologies, laws should prevent collectors from using them in ways that subject consumers to “deceptive, or abusive acts and practices.”

The report also contains the text of the Fair Debt Collection Practices Act, which currently governs debt collectors on a federal level. Although state and federal changes are still in the discussion stage, help is available on the FTC’s debt collection page, which provides detailed, plain-English guidance regarding a consumer’s rights in a debt collection situation.


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