What You Need To Know About NY Debt Collection Settlements Manatt, Phelps & Phillips, LLP

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What happened

The Amendments, if adopted as proposed, create new definitions of various terms, including “creditor”, “debt” and “debt collector”, or expand existing definitions, and impose substantial new restrictions on conduct on individuals. collection agents.

Significantly, the changes will expand the scope of who a collection agent is to include anyone collecting even non-credit-related transactions, judgment collection providers, and anyone collecting conditional obligations, such as debt sharing agreements. income or litigation finance companies, redefining the term “debt” to include contingent obligations, obligations that have been reduced to judgment and all consumer “transactions” rather than just the consumer credit transactions.

In substance, the changes impose restrictions which, in some cases, go well beyond the restrictions imposed in Regulation F recently adopted by the CFPB, notably the requirement that a validation notice expressly state “the limitation period. applicable to debt ”and prohibiting the use of electronic communications without the express and revocable consent of the consumer. The amendments also limit debt collectors to a maximum of one phone call and three attempted phone calls per seven day period per deemed debt, and, in response to consumer validation requests received during the period of 30-day validation, the amendments require the debt collector to provide “sufficient documentation to establish the complete chain of title.” . . including sufficient documentation to establish the precise dates on which the debt was assigned, sold or transferred and the names of each former owner of the creditor’s account to which the debt was originally due or allegedly owed to the current owner.

Why is this important

The definition of “debt” broadened to include conditional obligations is likely to directly address various forms of conditional financial obligations, such as revenue sharing agreements and litigation financing. Since the current definition of “debt” likely includes these obligations, the inclusion of conditional bonds may be a strategic effort to overrule through regulation the many decisions of New York courts at all levels, asserting that conditional bonds are not a form of credit.

In addition, the obligation to disclose the applicable statute of limitations can sometimes be extremely difficult for creditors and debt collectors, especially in light of the broad definition of the term “debt”, as not all debts clearly fall within the scope of the term “debt”. and obviously existing categories and because limitation laws can often be governed by a large body of case law. Likewise, oral promises to pay and partial payments can jump-start the relevant statute of limitations, potentially forcing the debt collector to review every communication with the creditor and every debt collector who may have worked on the account. Finally, statutes of limitations may vary from state to state, which means that debt collectors may have to engage in a wide variety of legal analyzes relating to each debt. We are concerned that the end result could harm consumers, as debt collectors who are unsure of the applicable statute of limitations may choose to bring a debt collection action against consumers rather than risk violating this requirement.

Finally, imposing the vague requirement that the validation of a receivable include “sufficient documents to establish the complete chain of title” seems likely to generate significant confusion and possibly litigation around the sufficiency of all documents provided by the collector. receivables, as sales of receivables are usually documented by including a list of accounts as an attachment to a purchase and sale contract, which, of course, cannot be shared under the Fair Debt Collection Practices Act (FDCPA) or New York regulations that the changes are intended to update.


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