The Second Circuit Court of Appeals recently ruled that New York City’s Department of Consumer Affairs has the authority to regulate law firms’ conduct related to purchasing and collecting consumer debt.

In Eric M. Berman, P.C., et al. v. City of New York, et al., the Second Circuit vacated a 2009 district court ruling which held that Local Law 15, a city law requiring law firms acting as debt collection agencies to obtain a license from the New York Department of Consumer Affairs, was preempted by the state’s ability to regulate attorney conduct.  Local Law 15 imposes several requirements on law firms, including that they provide debtors with a call-back number that will be answered by an actual person.  It also allows for $100 fines against firms that contact debtors without a license.

After New York City appealed the decision in 2013, the Second Circuit certified two questions to the New York Court of Appeals, asking whether the law encroached on the state’s authority and whether it violated the city’s charter.  In a 4-2 decision, the Court of Appeals responded in June that there was no conflict between the city and the state because Local Law 15 doesn’t regulate attorneys who are acting on behalf of a clientonly debt collection activities that fall outside the practice of law.

The state’s high court acknowledged that the line between “debt collection” and “practice of law” can be blurry, but said that when in doubt, courts should look to the Fair Debt Collection Practices Act.  The Court of Appeals said that there is a clear distinction between an attorney calling or writing to a debtor and the kind of behavior Local Law 15 was intended to address.  “There is a significant and meaningful distinction between such conduct and conduct that is typical of a debt collection agency — making high volume collection calls at off-hours and sending boilerplate ‘dunning’ letters demanding payment without details of the source of the debt or the actual amount due,” the state court said.

The Second Circuit said that the state court’s response to the preemption question effectively settled both issues despite the Court of Appeals declining to reach the question of whether Local Law 15 violated New York City’s charter.