ALBANY — New York financial regulators proposed Thursday curbing 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 also would 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,” Department Superintendent Ben Lawsky said. “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 federal student loans or grants.
Several provisions would take effect upon publication of the rules in the State Register. 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.
They include protections against collection of debts after the statute of limitations has expired. Collectors would be required to advise debtors when they believe they could 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 would prohibit collectors from accepting any payments to help settle a defaulted debt without first providing “a clear and conspicuous written document” confirming the payment schedule.
Two provisions would take effect 180 days later. One would require, within five days of first contacting the consumer, detailed written notice of the original debt, creditor, later charges and payments. The other would require, when the consumer disputes the validity of the debt either in writing or by phone, verifying documents within 30 days including the signed contract or application or other proof of the original loan and the final account statement.