On March 11, 2009, the New York City Council approved a bill (Introduction 660-A) that would amend the Debt Collection Agencies ordinance (DCA). The DCA requires a license of any person acting as a debt collection agency. New York City, N.Y., Admin. Code § 20-490. “Debt collection agency” currently means a person engaged in business the principal purpose of which is to regularly collect or attempt to collect debts owed or due or asserted to be owed or due to another. Id. § 20-489(a). If enacted, the bill would expand the definition of “debt collection agency” to include a buyer of delinquent debt who seeks to collect such debt either directly or through the services of another by, including but not limited to, initiating or using legal processes or other means to collect or attempt to collect such debt. Accordingly, the bill would amend the DCA to regulate passive debt buyers who use third-party collection agencies to collect debts if the debts were delinquent at the time of acquisition.

The bill also would amend the DCA to:

  • Limit the scope of the DCA’s attorney and law firm exemption;
  • Require debt collection agencies to provide certain disclosures in collection communications that go beyond those required by the federal Fair Debt Collection Practices Act;
  • Require debt collection agencies to provide written confirmations of debt payment schedules or settlement agreements;
  • Prohibit debt collection agencies from attempting to collect or contact a consumer after he or she requests verification of a debt until the agency furnishes written documentation identifying the creditor who originated the debt and itemizing the principal balance of the debt that remains or is alleged to remain due and all other charges that are due or alleged to be due;
  • Prohibit debt collection agencies from contacting a consumer about, or seeking to collect, a debt on which the statute of limitations for initiating legal action has expired unless the agency first provides certain information with respect to the consumer’s legal rights; and
  • Increase the penalties that may be imposed for acting as a debt collection agency without a license.

The law would take effect 120 days after enactment. The City Council sent the bill to the Mayor, who has scheduled a hearing for March 18, 2009.

This legislation reflects a trend toward greater regulation and more disclosure, particularly with respect to potentially time-barred debts, itemization of amounts due or to be collected and educating consumers of their rights. See, e.g., Oregon Senate Bill 328 (giving the Oregon Department of Justice authority to enforce Oregon law prohibiting illegal collection practices); Federal Trade Commission, Collecting Consumer Debts: The Challenges of Change, A Workshop Report (2009) (recommending various reforms to the debt collection legal system [see our Alert of March 5, 2009]); August 2008 Settlement Between New Mexico Attorney General and National Collection Agency (requiring the collection agency to make written and oral disclosures to debtors with respect to the time-barred nature of a debt and its enforceability through legal action). Similar efforts elsewhere are expected.

  • Michael Tomkies and Charles Gall

DEALING WITH MULTISTATE DEBT COLLECTION COMPLIANCE? We routinely advise on collection-related activities and the regulated activities of creditors, third party debt collectors, debt buyers and loan servicers. We also publish an easy-to-use reference that compiles state and federal laws governing debt collection practices. The Debt Collection Digest is organized topically, includes the federal Fair Debt Collection Practices Act and Commentary for easy cross-reference, and covers ADAD and monitoring and recording statutes. The Digest covers both consumer and commercial collections and includes a detailed analysis of statute applicability, as well as supplemental information such as codes of conduct. Creditors, subsequent holders, third party collectors, debt buyers and loan servicers should find the Digest an invaluable resource for collection program development, management and regulatory compliance. Contact us for details.