New court rules and new state regulations have been adopted to protect consumers and ensure a fair legal process.

Over 100,000 credit card debt collection cases are brought every year against ordinary consumers in New York State, many of whom are elderly or disadvantaged. Often these cases get to court through deceptive debt collection practices. Many debt collectors buy old debt at a discount from a credit card company or another debt collector. Then they bring these cases to court without sufficient proof of the debt, or the debt may be too old to legally collect, but the consumer doesn’t know about these defenses.

Frequently, the person who is being sued gets a “default” judgment that they first learn about when their wages or their bank account is garnished. A default judgment happens when the consumer doesn’t show up in court to defend themselves or challenge the debt. Sometimes, a person who has amassed debt doesn’t realize how important it is to show up in court. Or they didn’t know they had a court date. Meanwhile, the debt collector, in addition to lack of sufficient proof of the debt, may not have served the court papers in a legal manner. This is sometimes called “sewer service” — meaning the process server, the person hired by the debt collector to serve legal papers, didn’t serve the papers, and maybe even dumped them in the sewer!

In September, Chief Judge for the New York State Courts, Jonathan Lippman, announced new rules designed to stop these abuses, in particular the problem of default judgments sufficient factual proof of the debt. The new court rules took effect on October, 1st, 2014. These rules provide much needed help to the consumer by making it more difficult for deceptive debt collection practices to take place.

- Creditors are required to submit detailed proof that support default judgment applications, including the chain of ownership for the debt, and validation of the debt.

- Third-party debt buyers must submit proof from the original creditor and any other debt purchasers sworn to by people having personal knowledge of the debt, and copies of key documents such as the credit agreement, most recent monthly statement, proof that the person being sued is the right party to be sued, an itemized summary of the balance allegedly due and other key documents.

- The creditor's lawyer must affirm that the statute of limitations for the debt has not expired, because after a certain amount of time, old debt can’t be collected.

- The creditor must provide the court with an additional notice of the lawsuit, which the court itself mails to the address that the creditor served. If this notice is returned as undeliverable, then the court will NOT enter a default judgment.

Most consumer/defendants in a debt collection case don’t know that they may have good defenses and they don’t have a lawyer to help them. Be sure to check out how and where to get help at the end of this article.

Meanwhile, many consumers are victimized by abusive and deceptive debt collection practices before the problem becomes a court case. On December 3, 2014, Governor Cuomo announced new state Department of Financial Services regulations to protect borrowers and crack down on predatory debt collection practices.

During 2014, more than 20,000 New Yorkers complained to the state about harassing and abusive debt collection practices.  These include aggressive and multiple phone calls, attempts to collect debt not owed, or from the wrong person. Many of the third party debt buyers/collectors keep shoddy records, and do little to verify that they are contacting the right person and demanding the correct amount. They make excessive profit by buying debt for pennies on the dollar and then harassing people to pay the full amount while tacking on extra fees. Since the debt changes hands frequently among different debt buyers, a consumer may be pursued by one collector even if they paid off the debt with a different collector.

Benjamin M. Lawsky, the Superintendent of the Department of Financial Services said, in announcing these regulations, “The debt collection industry is filled with far too many unscrupulous actors willing to deceive and abuse consumers just to make a quick buck.”

The new regulations will be implemented in 2015 (most in March and some in August), and they include:

  • When a new debt collector first contacts an alleged debtor, they must disclose specific information about the amount owed when the original debt was “charged-off” and the total post-charge off interest and fees.
  • Debt collectors must also provide notice that the statute of limitations may be expired and that the consumer can use this information in their defense if they are sued for failure to pay this debt.
  • Under the old rules, consumers had 30 days after the first collection attempt to dispute, in writing, the validity of a debt. With these new rules, consumers can request “substantiation” of the debt at any time during the collection process. When the debt collector receives a substantiation request, all collection activities must cease and the documentation must be provided within 60 days.
  • The consumer must get written confirmation of any debt settlement agreement and written confirmation once a debt is paid off.

More details about the new regulations can be found at the following link.

If you’ve been contacted by someone who you think is trying to collect fraudulent debt, contact the DFS Consumer Hotline at (800) 342-3736. Or click on this link to file a complaint.

For more information on consumer debt, please visit the NY Law Help Consumer mini-portal, which has great resources on the topic, including a video that walks you step by step on improper debt collection practices and how to help yourself. LawHelpNY has additional resources that can help you understand your rights regarding consumer debt and guide you through the process.

Here is a link to the Chief Judge Lippman’s press release announcing the new court rules.

Here is a link to Governor Cuomo’s press release announcing the new state regulations.