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Debt Collection

Debt collection continues to be a popular subject of consumer complaints received by federal and state consumer protection agencies. The federal Fair Debt Collection Practices Act (FDCPA), which was passed in 1977, is intended to prevent abusive, deceptive, and unfair debt collection practices in the marketplace. The FDCPA applies to those who collect debts owed to creditors. This includes personal loans for family members, cars, homes, credit card and medical bills.

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What Entities Are Considered Debt Collectors

A debt collector is a person who conducts business with the purpose of collecting any debts or enforcing security interests, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. The term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. The term does not include:

1. Employees collecting debts for creditors;
2. Affiliates acting as debt collectors for an affiliate entity;
3. Officers or employees of the United States or any state government, so long as it is a part of his or her official duties;
4. Process servers;
5. Nonprofit organization credit counselors; and,
6. Any person collecting or attempting to collect debt owed or asserted to be owed to another to the extent such activity:
             i Is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement;
             ii Concerns a debt which was originated by such person;
             iii Concerns a debt which was not in default at the time it was obtained by such person; or,
             iv Concerns a debt obtained by the person in a commercial credit transaction involving the creditor.

Consumers’ Rights

The federal law prohibits a debt collector from engaging in the following activities:

Debt collectors are also prohibited from:

State Debt Collection Law

New York law differs from the FDCPA, but the premise is the same -- to protect consumers who owe debts, or are believed to owe debts, from harassment, improper contact, and threats. If the New York provisions are violated by debt collectors or creditors, the New York State Attorney General is authorized to proceed against the violators. However, New York courts have found that, in instances where the collection of consumer debt has overlapped with deceptive and unfair practices, under the New York Consumer Protection Act (N.Y. General Business Law   349), a consumer can file a private lawsuit against the company1

Under the New York State Debt Collection Law2>no creditor can:

New State Law

A New York State law enacted in 2008 protects consumers from debt collectors with judgments and provides that such judgments will not attach to twenty-five hundred dollars ($2,500) of a consumer’s Social Security, retirement or other such statutory exempt payments, simply because those payments are received and deposited through electronic means or by direct deposit into their bank account. The bill provides clear direction to debtors on what actions they must take to remediate and respond to an execution notice and offers a prescribed exemption notice for the debtors to send in response. If the judgment debtor believes a bank is attaching an account with exempted funds in it, they should complete an exemption form and return it to the banking institution and judgment creditor within twenty (20) days of the initial action. If the judgment creditor objects to the judgment debtors claim of exempt funds, there is a court procedure which ensures to determine whether or not the funds are exempt. The law also provides numerous legal safeguards for judgment debtors and due process measures for judgment creditors. This twenty-five hundred dollar ($2,500) monthly safeguard is often necessary to preserve a judgment debtor’s ability to provide for his or her monthly housing, food, and transportation costs.

When the Creditor is Collecting a Debt

Often times, creditors themselves will contact a consumer directly about a debt. An example of this would be a credit card company calling to remind customers that they haven’t been making the minimum payments necessary to keep the account from defaulting. Unfortunately, federal consumer protection laws regarding fair debt collection do not apply in these situations. Instead, the actions of creditors collecting a debt are regulated by New York State law. Consumer protections provided through the New York State Debt Collection Procedures Law are listed above and apply to both creditors themselves, and debt collectors.

Validating a Debt

If a consumer/ debtor makes the request for proof of the debt in writing, a debt collector must validate the debt before continuing to collect on the account. Validating a debt could consist of obtaining a printout of the account statement, which informs the consumer of the services provided, the dates on which the charges were incurred, and the amount of debt. A debt collector may be entitled to rely on the information provided by its client. Sending a copy of the contract may not be sufficient.

If a consumer disputes the debt, the debt collector must notify the credit reporting agencies of this fact. Otherwise, this is a violation of the Fair Credit Reporting Act, which a consumer could report to the Federal Trade Commission, or bring an individual lawsuit.

Debt Validation Letters

A debt validation letter is sent to the consumer from the creditor to inform the consumer of his or her debts. It must contain: a “mini — Miranda” warning that states, “We are attempting to collect a debt and any information obtained may be used for this purpose”; the debt amount (including interest); the creditor’s name; a statement that the debt is assumed to be valid unless the consumer disputes all or a part of the debt within thirty (30) days; and, a statement that on written request, the debt collector will provide the original creditor’s name and address.

Enforcing a Judgment

Once a creditor obtains a judgment in court, it then can enforce a judgment through a variety of means such as:

Freezing Bank Accounts

To freeze a bank account, the creditor needs to serve a bank with a court order. In New York, it is called a “restraining notice” or an “execution.” The restraining notice may be accompanied with an information subpoena (an official notice requiring someone to appear in court) requiring the bank to answer questions about the account, such as: account balance, name of employer, and whether there are exempt funds in the account. Statutorily EXEMPT monies include:

Debt Collection Procedures Related to Identity Theft

Recently, New York State law was amended to prohibit debt collection against debtors who are victims of identity theft. Under the law, the debtor who is alleging to be a victim of identity theft must present notification to the “principal creditor”, or any other debt collector pursuing collection, that includes a copy of a valid police report alleging the debtor is a victim of identity theft, and a written statement that the debtor claims to be a victim of identity theft.

Upon notification by the consumer that the debt arose from identity theft, the principal creditor must temporarily stop attempts to collect the debt and pursue an investigation of the case. The principal creditor must review the information in good faith, and then determine whether it establishes that the debtor is not responsible for the debt in question. The principal creditor’s determination shall be made in a manner consistent with the provision of 15 U.S.C. 1692f(1). 10 If the principal creditor decides the information provided is insufficient to establish that identity theft is the cause for the debt in question, such creditor may continue debt collection activities. However, the principal creditor must notify the debtor in writing of the determination before beginning any further debt collection activities.

If the principal creditor recognizes the debtor/consumer as a victim of identity theft and ceases collection activities, the principal creditor must within five (5) business days of the decision to cease collection activities, notify any consumer reporting agencies to which the principal creditor has furnished adverse information about the debt in question. These agencies then must delete such information and notify the creditor that debt collection activities have been terminated based upon the debtor’s claim of identity theft. When a principal creditor violates any provisions of the Act it is subject to enforcement by the NYS Attorney General. Violations of the Act will result in penalties which may include an injunction to cease any further violation, without showing any proof of harm or damage; or a monetary fine between five hundred ($500) and one thousand dollars ($1,000) per violation.

Debt Obligations of Co-Signers

Car dealers as well as furniture and appliance retailers often require co-signers in connection with credit transactions. Frequently, the co-signer enters into the obligation without a full understanding of his or her potential liability, thinking that he or she is merely acting as a reference for a friend or family member. However, he or she is signing as an actual lendee and can be held entirely responsible for the full amount of the debt.

The co-signer is fully responsible for payment of the debt regardless of who holds title or whether the creditor has exhausted or has even begun to try collecting against the other co-signer. A debt collector can pursue the co-signer before even the primary co-signer who holds true possession of the debt is pursued. A debt collector will generally pursue the co-signer who generally has greater assets. Both co-signers must be aware of their liability. The New York General Obligations Law requires the creditor to give a co-signer a completed copy of the contract or other document describing the obligation. Prior to signing the contract, the co-signer must be given written disclosure, in at least 10-point type, attached to or part of the contract, explaining that:

A Federal Trade Commission Rule requires a similar notice to co-signers and declares it a deceptive trade practice for a lender or seller to misrepresent or fail to inform a co-signer of the nature and extent of their liability. 12

Consumer/Debtor Complaints

To file a complaint, contact the New York State Department of State Division of Consumer Protection, Federal Trade Commission, the New York State Attorney General, or the district attorney of any county. Contact information is below:

New York State Attorney General
Consumer Frauds & Protection Bureau
120 Broadway, New York, NY 10271
1-800-771-7755
www.oag.state.ny.us

Federal Trade Commission
Consumer Response Center
Washington, D.C. 20508
1-877-382-4357
www.ftc.gov

New York State Department of State Division of Consumer Protection
1-800-697-1220
www.nysconsumer.gov

Debt Management Assistance

Several national non-profit organizations also provide information and assist people with debt problems in person, via the phone, or via the Internet. Consumers who feel debt management assistance would be helpful should seek advice from non-profit companies.

  1. See In re Scrimpsher, 17 B.R. 999 (Bankr. N.D.N.Y. 1982) (interpreting New York law). ↑
  2. &N.Y. Gen. Bus. Law   600 et seq. (2008). ↑
  3. http://www.courts.state.ny.us/Ithaca/city/webpageJudgement.html#collectonjudgement (last visited August, 7, 2008). ↑
  4. N.Y. Debt. and Cred. Law   282; see also 42 U.S.C.   407 (2008). ↑
  5. N.Y. Debt. and Cred. Law   282; see also N.Y. Labor Law   595 (2008). ↑
  6. N.Y. Debt. and Cred. Law   282; see also 38 U.S.C.   5301; 42 U.S.C.   1717 (2008).↑
  7. N.Y. Debt. and Cred. Law   282; see also N.Y. Civil Practice Law and Rules   5205(d) (2008). ↑
  8. N.Y. Worker Comp. Law   33 (2008). ↑
  9. See generally 5 U.S.C.    8130, 8346; 10 U.S.C.    1440, 1450; 28 U.S.C.   376; 22 U.S.C.   4060; 33 U.S.C.    775, 916; 45 U.S.C.   231m; 50 U.S.C.   403; N.Y. Civil Practice Law and Rules   5205(e); N.Y. Debt. and Cred. Law   282; N.Y. Education Law  524; N.Y. Insurance Law    4607, 3212 (d), (f); N.Y. Retirement and Social Security Law   110; N.Y. Unconsolidated Law   5711-o (2008). ↑
  10. 15 U.S.C. 1692f provides that a debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Subdivision (1) prohibits the collection of any amount (including interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or authorized by law. (2008). ↑
  11. See N.Y. General Obligations Law   15-702 (2008). ↑
  12. See 16 C.F.R.   444.3 (2008) (unfair or deceptive cosigner practices). ↑
Last Modified: April 28, 2011