On February 19, 2015, the New York Department of Financial Services (DFS) issued guidance in the form of FAQs on its recently-enacted debt collection regulation (23 NYCRR 1). The guidance came in response to calls from many significant players in the debt collection industry – including ACA International – to explain certain groundbreaking aspects of the new rules. The newly issued FAQs are available on the New York DFS website.

The sixteen FAQs provide various points of clarification, including:

  • The regulation does not apply to the collection of debts by original creditors, but do apply to third-party entities collecting on behalf of original creditors.
  • The regulation does not apply to debts originated out of a transaction wherein credit has been provided by a seller of goods or services directly to a consumer for the exclusive purpose of purchasing goods or services. As noted by DFS, this exception could include “the purchase of an automobile[] or a retail installment contract if the credit is extended by the seller for specific goods or services.”
  • With respect to the definition of “debt collector” under the new regulation, DFS instructed debt collectors to look to the applicability of the federal Fair Debt Collection Practices Act (“FDCPA”) for guidance, adding, “[d]ebt servicers who collect or attempt to collect a debt that was not in default at the time it was obtained for collection are not considered debt collectors for the purposes of 23 NYCRR 1, and are not subject to the regulation.”
  • At this point, DFS indicated that it was only focused on the collection of debts from New Yorkers; therefore, the regulation is intended to cover only the collection of debts from individuals residing in New York.
  • If a debt collector cannot “substantiate” a debt, then it cannot collect on that debt. Moreover, “failure to provide the required information within 60 days of receipt of the request for substantiation is a violation of the rule separately enforceable by [DFS].”
  • The regulation does not apply to the collection of money judgments.
  • In the collection of potentially time-barred debt, collectors must comply with disclosure obligations of the DFS regulations as well as the rules promulgated by the New York Department of Consumer Affairs. This includes the additional disclosure that: suing on a debt for which the statute of limitations has expired is a violation of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq.; and that if the consumer admits, affirms, acknowledges, or promises to pay a debt for which the statute of limitations has expired, the statute of limitations may restart.

Troutman Sanders reported on New York’s new debt collection regulation on December 5, 2014 (article here). The regulation seeks to combat the issues raised in recurring consumer complaints identified by New York Governor Andrew Cuomo’s office. For now, the rules only impact third party debt collectors and debt buyers. They provide for, among other things: (a) greater initial disclosures by debt collectors; (b) required disclosure of time-barred debt; and (c) the obligation that collectors provide written confirmation within five days of establishing a debt payment schedule or other agreement with the consumer. A copy of the full regulation is found here. The majority of the rules will become effective on March 3, 2015, with some limited sections related to itemization and debt substantiation becoming effective August 30, 2015.

Practical Impact

The FAQs issued by the DFS offer helpful guidance in the sense that they confirm many of the prior conclusions of industry members. FAQ No. 5 may be particularly telling with respect to the broader application of DFS’s new rules. There, DFS indicated that it was only concerned with collection from New York residents “at this time,” thereby leaving the door open to extension of its requirements to collection efforts against out-of-state residents by New-York based debt collectors. As we previously noted, this regulation will likely provide a roadmap for future, national regulation by the Consumer Financial Protection Bureau (“CFPB”). All debt collectors, but particularly those collecting from New Yorkers, are advised to revisit their compliance policies in light of the new rules, as DFS has enforcement authority to impose civil penalties for violations.