Top Law Firms In New York City - New York Considers Licensing Debt Collectors

Top Law FFirms In New York City - New York Considers Licensing Debt Collectors

Top Law FFirms In New York City - New York Considers Licensing Debt Collectors 

While all debt collection agencies are presently regulated in New York, they are not yet required to be licensed. A bill now pending in both houses of the legislature would require such licensing, and would be broad enough to reach third-party debt buyers, the frequent source of complaints to the NYC Department of Consumer Affairs. An applicant would have to make thorough disclosures of the methods they use to confirm a debt and whether they regularly sell debts to others, and would have to provide a summary of the information about the consumer's account that gets transmitted to a purchaser of the debt. With many other disclosures and protections included in the bill, the New York City Bar has recommended passage of this legislation, after minor differences in the two bills are resolved.

In 2012, the NYC Department of Consumer Affairs reported that complaints about debt collection abuses were at the top of the list for five years in a row. Typical complaints include debt collectors' failure to verify their ownership of the debt and failure to verify the identity of the debtor, as required by current laws, along with improper service of process in lawsuits, and improper garnishment of debtors' wages and bank accounts.

Similarly, in 2011, the New York State Consumer Protection Division reported that debt collection was the second-highest complaint. And the FTC reported that in 2012 debt collection cases were the most common consumer fraud complaint in New York and that it receives more complaints about the debt collection industry than any other specific industry. After holding a series of public roundtables in 2009, the FTC concluded that significant litigation and arbitration reforms were necessary.

A 2013 FTC report took a close look at the debt-buying industry, which makes large-scale purchases of delinquent or charged-off consumer debt from a creditor for pennies on the dollar, then seeks to collect the full amount owed from the original borrower.

The complaints against debt-buyers are similar to the complaints fielded against the general debt collection industry: failure to verify the actual debt or the debtor's identity and significant problems with service of process.

Although New York City has taken steps to regulate the conduct of debt collectors, including debt-buyers, regulation of the industry through licensing would comport with other legislative licensing requirements in the state.

Licensure would ensure that debt collection agencies, including debt-buyers, adhere to minimum standards of conduct, would regulate activities, and would provide for enforcement measures.

The law, if enacted, would require third-party debt buyers as well as law firms and debt collection attorneys who regularly engage in traditional debt collection activity to be licensed by the Department of State. Disclosures required of a license applicant would include their methods of confirming the validity of a debt, whether they regularly sell debts, a summary of its policies and record-keeping practices, and how it handles consumer challenges to its collection efforts. Also disclosed would be other licenses in other states, and any enforcement activity is taken against the debt collector.

A license application could be denied by the Secretary of State or revoked once granted, depending on the circumstances that come to light in the process. A fine could be imposed, of $500 per attempt to collect a debt.

Additionally, the Attorney General could conduct investigations and could seek an injunction and civil penalties. The courts, as well, could impose financial penalties from $100 to $10,000 for each violation. And collection agencies would be required to post a bond of between $10,000 and $75,000 depending on the number of their employees.

Importantly, the legislation would provide for a private right of action and injunctive relief and monetary damages by private citizens, allowing recoveries of up to $3,500 or actual damages, whichever is greater. Willful violations could result in even greater penalties, costs, and attorney fees.

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