Earlier this month, New York adopted enhanced consumer debt collection regulations proposed by the New York State Department of Financial Services (NYDFS). The regulations, among other things, require debt collectors to provide consumers additional disclosures, entitle consumers to more information about the money they owe and make it more difficult to collect on time-barred or “zombie” debt. For example, prior to collecting any payment, the collector must notify the consumer if the statute of limitations has expired and that, if the consumer is sued on the debt, the consumer may be able to avoid a judgment by informing the court that the debt is time-barred. This is in direct response to the reality that most consumers do not retain legal counsel and are unfamiliar with the law, and that the majority of consumer debt collection actions result in default judgment.
New York’s new regulations – taking effect on March 3, 2015, and August 30, 2015 – exceed the protections provided by the federal Fair Debt Collection Practices Act (FDCPA), the benchmark regulation for consumer debt collection. But, as the CFPB has stated, the FDCPA is the floor, not the ceiling, when it comes to protecting consumers from abusive and deceptive debt collection practices. New York Governor Andrew Cuomo announced, “These new tools and disclosures will protect New Yorkers across the state, and I am pleased that our administration is leading the way on this issue.” Other states undoubtedly will follow New York’s lead and toughen their own consumer collection regulations.
The CFPB is also in the process of developing consumer debt collection rules. In November 2013, the CFPB – the first federal agency with the purported authority to enact comprehensive debt collection rules – issued an Advanced Notice of Proposed Rulemaking on this issue. Creditors, who largely are exempt from the FDCPA, will likely be subject to the CFPB’s anticipated regulations. Indeed, the CFPB has already made clear its view that creditors may be liable for unfair, deceptive or abusive acts or practices (UDAPP) in violation of Title X of the Dodd-Frank Act. Original creditors need to remain mindful of the FDCPA and analogous state consumer debt collection regulations, and closely watch the CFPB’s actions in this arena. And creditors will need to ensure that their policies and procedures for collecting debt reach the ceiling and don’t just scrape the floor.