On March 3, 2015, the New York Department of Financial Services finally cracked down on the predatory debt collection industry by enacting several new regulations that will afford greater protections for consumers in New York. The regulations will specifically target the collection of infamous “zombie debts,” and offer consumers more readily available information about the debts being collected from them and their rights regarding those debts.
The new regulations also include a significant clarification: debt buyers are explicitly included in the definition of debt collectors. It is now undisputed that these often predatory collectors that buy old debts to collect debts - debts that should no longer be collected on, either because such debts are already paid, settled, or should not be litigated because the timeframe to do so has expired – must comply with these new regulations. Prior to the enactment, these debt buyers could easily take advantage of consumers and have had little to no knowledge about the debts - dubbed “zombie debts” because they linger despite being long dead. The new regulations, however, are not directed towards original creditors or to those collecting on business debts.
One way in which New York is preventing consumers from being less vulnerable to such practices is requiring debt collectors to provide initial disclosures to consumers. Within five days of the collector’s initial communication with the consumer, the collector must provide: general information about consumer rights, detailed information about the debt itself, and disclosure of the statute of limitations on the debt.
When initially communicating with the consumer, the collector has to alert them of the prohibited activities under the Fair Debt Collection Practices Act (FDCPA). This puts consumers on notice that this Act exists and that certain debt collections are not necessarily fair, in the sense that they can seek legal recourse if the Act is violated. Collectors must also now list the types of income protected from collection if a collector ultimately gets a judgment against a debtor. By doing this, consumers – such as those whose source of income is disability, pension, social security, spousal and child support – will now know that their income is safe from collection. Now, a single mother with crippling credit card debt, for instance, will have assurance that collectors cannot touch her child support payments and she, as well as many other consumers, may decide that nonpayment is actually the best option. With this reassurance and enhanced skepticism of the debt collection process, consumers will be more aware of predatory collection practices, and more importantly, debt collectors that do engage in unlawful practices may think twice because of this consumer awareness.