We have summarized below the salient provisions of two recent developments in New York that may significantly impact buyers and collectors of delinquent debt, including delinquent residential mortgage loans.
First, New York City has passed legislation, known as Introduction No. 660-A ("Int. No. 660-A"), which: (i) expands the debt collection agency licensing requirements to cover purchasers of delinquent debt, in addition to collectors; (ii) amends required and prohibited collection practices; and (iii) expands penalties for unlicensed collection activity. Second, the New York State Assembly as well as the Senate have introduced a bill, A07558,1 entitled the "Consumer Credit Fairness Act," which would: (i) establish a two year statute of limitations for commencement of an action arising out of a consumer credit transaction where the defendant is a purchaser, borrower or debtor; (ii) establish a notice of lawsuit which must be mailed to the defendant in such a cause of action; (iii) establish requirements for the complaint in such an action; and (iv) provide for arbitration for such actions. Importantly, neither bill appears to exclude residential mortgage loans from their purview and as a result, the secondary mortgage may be significantly impacted by these laws.
Int. No. 660-A was signed by Mayor Bloomberg on March 18, 2009, and becomes effective 120 days after enactment, on July 16, 2009. A07558 is still pending at the committee level in both the state Assembly and Senate, but would become effective on the first day of January following its passage. We will keep you informed of further developments as they arise.
I. Amendments to New York City's Debt Collector Agency Statute
Int. No. 660-A amends New York City's current debt collector statute in a number of significant ways.
A. Amended Definition of "Debt Collector Agency" and Exclusions
Currently, the term "debt collector agency" means a person engaged in business the principal purpose of which is to regularly collect or attempt to collect debts2 owed or due or asserted to be owed or due to another. Int. No. 660-A amends this definition so that now, the definition also includes a buyer of delinquent debt who seeks to collect such debt either directly or through the services of another by, including but not limited to, initiating or using legal processes or other means to collect or attempt to collect such debt. This means that purchasers of delinquent debt that use the services of another to collect on such debt will still be required to obtain a license, even if the purchaser does not directly engage in collection activity.
In addition, Int. No. 660-A also amends the previously existing exemption from the definition of a "debt collector agency" for attorneys who collect debt as an attorney on behalf of and in the name of a client. As amended, attorneys or law firms or parts thereof who regularly engage in activities traditionally performed by debt collectors, including, but no limited to, contacting a debtor through the mail or via telephone with the purpose of collecting a debt or other activities as determined by rule, must now obtain a license.
Significantly, the law does not exclude depository institutions (i.e., banks) from the definition of a "debt collection agency," although by dint of federal preemption, such institutions would not be subject to the debt collection agency statute.
B. Required and Prohibited Collection Practices
Int. No. 660-A also amends the debt collector agency statute to add a new section which sets forth a number of required and prohibited collection practices, in addition to any practices required or prohibited under any federal, state or local law.
With respect to required practices, a debt collection agency must provide in any permitted communication with a consumer:
- A call-back number to a phone that is answered by a natural person;
- The name of the agency;
- The originating creditor of the debt;
- The name of the person to call back; and
- The amount of the debt at the time of the communication.
Further, the agency must confirm within five business days in writing to the consumer, any debt payment schedule or settlement agreement reached regarding the debt.
With respect to prohibited practices, a debt collection agency may not attempt to collect or contact a consumer regarding a debt after such consumer requests verification for such debt until such agency furnishes such consumer written documentation identifying the creditor who originated the debt and itemizing the principal balance of the debt that remains or is alleged to remain due and all other charges that are due or alleged to be due. In addition, an agency may not contact a consumer about or seek to collect a debt on which the statute of limitations for initiating legal action has expired unless such agency first provides the consumer such information about the consumers legal rights as prescribed by rule.
In addition to the currently existing penalties under the debt collection agency statute, which provide for penalties of not less than $700 nor more than $1,000 per violation, Int. No. 660-A provides that any person who is found guilty of acting as a debt collection agency will be subject to an additional penalty of $100 for each instance in which contact is made with a consumer in violation of the licensing requirements.
II. Proposed "Consumer Credit Fairness Act"
A07558 proposes to establish the "Consumer Credit Fairness Act" (hereinafter the "Act"), which would significantly shorten the time period that creditors would have to commence actions on debts arising from consumer credit transactions.3
A. New Statute of Limitations for Consumer Credit Transactions
Most significantly, A07558 establishes a new statute of limitations period for certain actions arising out of consumer credit transactions. Specifically, A07558 provides that an action arising out of a consumer credit transaction, whether a purchaser, borrower or debtor is a defendant, must be commenced within 2 years, except for certain enumerated transactions. The enumerated transactions include residential rent overcharge (4 years), contracts for sale (7 years) or warranties on sales of new homes (4 years). A07558 provides that when the two year period expires, the right to bring action is extinguished as well as the remedy.
B. Notice of Lawsuit Requirement
A07558 provides that at the time of filing of the proof of service and complaint in an action arising out of a consumer credit transaction, the plaintiff must submit to the clerk a stamped envelope addressed to the defendant as well as a written notice in both English and Spanish in at least 12 point font. The face of the envelope must be addressed to the defendant at the address at which process was served and must contain the defendant's name, address (including apartment number) and zip code as well as the appropriate clerk's office as its return address.
Please click here to view what the notice must state.
A07558 provides that the clerk must then promptly mail the defendant the envelope containing the notice. A07558 states that no default judgment based on the defendant's failure to answer will be entered unless there has been compliance with the foregoing and at least 20 days have elapsed from the date of mailing by the clerk. Further, A07558 also provides that default judgment applications must also be reviewed by a judge. In addition, on any application for a judgment by default, if the plaintiff is not the original creditor, the applicant must include an affidavit from the original creditor of the facts constituting the debt claimed, together with proof of any subsequent assignment or assignments. Obviously, this requirement will be difficult, if not impossible, to fulfill on outstanding mortgage loans.
C. Requirements for the Complaint
A07558 states that in the case of an action arising out of a consumer credit transaction, the complaint must be served with the summons. In addition, the contract or other written instrument on which the action is based must be attached to the complaint and the following information set forth in the complaint:
- The name of the original creditor;
- The last four digits of the original account number;
- The date and amount of the last payment;
- If the complaint contains a cause of action based on an account stated, the date that the final statement of account was mailed to the defendant;
- An itemization of the amount sought, by (a) principal; (b) finance charge4 or charges; (c) fees imposed by the original creditor; (d) collection costs; (e) attorney's fees; (f) interest; and (g) any other fees or charges.
A07558 states that if the plaintiff is not the original creditor, the complaint must also state the date on which the debt was assigned to the plaintiff as well as the name of each previous owner of the account and the date on which the debt was assigned to that owner.
A07558 also permits defendants in consumer credit transactions to raise improper service as a defense in their answer and preserve that defense for trial without having to file a separate motion to dismiss within 60 days as under current law.
A07558 provides that in any proceeding to confirm an arbitration award based on a consumer credit transaction, the party seeking to confirm the aware must plead the actual terms and conditions of the agreement to arbitrate. The party must attach to its petition: (i) the agreement to arbitrate; (ii) the demand for arbitration or notice of intention to arbitrate, with proof of service; and (iii) the arbitration aware, with proof of service. A07558 directs that if the award does not contain a statement of the claims submitted for arbitration, of the claims ruled upon by the arbitrator and the calculation of figures used by the arbitrator in arriving at the award, then the petition must contain such a statement. A07558 states that the court may not grant confirmation of an award based on a consumer credit transaction unless the party seeking to confirm the aware has complied with the foregoing provisions.