New York financial regulators proposed Thursday to curb abuse by debt collectors by requiring they verify all disputed claims, advise consumers when the statute of limitations has expired on debts, and confirm settlement agreements in writing.
Regulations proposed by the Department of Financial Services would also authorize consumers to choose email for communications from collectors to reduce harassing phone calls and keep better records of interactions.
“Debt collectors frequently use abusive scare tactics to try to stack the deck against struggling families and squeeze outsized profits out of their financial misery,” said Department Superintendent Ben Lawsky. “These reforms will help level the playing field for consumers.”
New Yorkers filed more than 13,000 complaints about collection practices in the past 18 months, according to New York regulators. Problems are especially frequent from companies buying defaulted debts for pennies on the dollar. Complaints include harassing calls, contacting incorrect people and seeking incorrect amounts.
Federal law already prohibits collectors from using or threatening violence, using obscenities or profanities and calling repeatedly intentionally to harass debtors. While they can sue, money exempt from judgments includes Social Security, Supplemental Security Income, pensions, welfare, disability benefits, veterans’ benefits, alimony, child support and student loans or grants.
Several provisions would take effect upon publication of the rules in the State Register, following a 45-day public comment period and any revisions. The department said this was its first use of the “gap authority” provided by the law signed in 2011 by Gov. Andrew Cuomo over previously unregulated providers of financial products and services.
State regulators proposed specific protections against collection of debts after the statute of limitations has expired. Collectors would be required to advise debtors that time had passed, that they could now beat a lawsuit, and that any payment or promise to pay an expired debt could restart the clock on it, while failure to pay could damage their credit status.
The regulations also ban collectors from accepting payments without first providing debtors with “a clear and conspicuous written document” confirming the payment schedule.
Two proposed provisions would take effect 180 days later.
One would require, within five days after a collector first makes contact, detailed written notice of the original debt, creditor, later charges and payments.
The other provision would require, when the consumer disputes the debt in writing or by phone, the collector to provide verifying documents within 30 days. Those include the signed contract or application or other proof of the original loan and the final account statement.