The New York Department of Financial Services has issued guidance about its new Third-Party Debt Collector and Debt Buyer Regulations in the form of Frequently Asked Questions (“FAQs”). The FAQs provide insight on the scope of the regulations as well as collectors’ responsibilities to substantiate disputed charged-off debts, provide time-barred debt disclosures, and more. (As we discussed in a recent webinar, the Consumer Financial Protection Bureau likely will address similar issues when it proposes its debt collection rules, expected later this year.)

Debt Collection Activities Covered

In the FAQs, the Department confirmed that the regulations do not apply to:

• Original creditors;
• Persons who collect debts through litigation (including obtaining settlements or payment plans to resolve pending legal actions);
• Assignees or collectors of retail installment contracts for the purchase of automobiles, medical services, and other goods or services; or
• Companies that service debt arising from student loans, home equity loans or mortgages (which the Department refers to in the FAQs as “debt servicers”) if they collect or attempt to collect on debts that were not in default at the time the debts were obtained for collection. These same entities would be covered by the regulations if they “are assigned defaulted debts to collect on behalf of creditors.”

Commenting further on the scope of the regulations, the Department said that “at this time” it is focused on the collection of debts from New Yorkers. This appears to leave open the possibility that the Department could seek to expand application of the rule in the future if it believes it has the authority to do so.

Substantiation of Debts

The FAQs also state that the Department will take enforcement action against any collector that does not substantiate a debt within the required 60-day period. Under the regulations, “substantiation” is a heightened dispute validation process whereby the collector must provide the consumer with specified documents evidencing the debt. The Department’s comments may imply that even if a collector permanently ceases collecting a debt after receiving a request for substantiation, the Department may penalize the collector for failing to substantiate the debt in a timely fashion. This is analogous to the CFPB’s position that furnishers have an obligation under the Fair Credit Reporting Act to investigate disputed information in a consumer report rather than simply directing consumer reporting agencies to delete the disputed items.

The Department also stated that after a collector substantiates a debt for the first time, the collector does not need to follow the substantiation procedures again if it receives subsequent oral or written disputes about the same debt. (It is unclear whether the Department would take a different position if the consumer provides new information in his or her dispute.) However, if the debt is transferred to a subsequent collector, the consumer is entitled to request substantiation of the debt again from the subsequent collector.

Out-of-Statute Debt Disclosure

The FAQs appear to expand the regulations’ time-barred debt disclosure requirement. The regulations say that this disclosure must be given “before accepting payment on” a debt that is beyond the applicable statute of limitations. The Department interprets this to mean that a collector may deliver the disclosure “in the communication requesting a payment or before accepting a payment.” The Department noted that if a debtor makes a payment on a time-barred debt that does not revive the statute of limitations, the collector must re-deliver the disclosure before accepting further payment. From a practical standpoint, collectors may need to provide the disclosure in every collection communication to New York debtors, including, as the regulations state, “in the same medium” that the collector accepts payment, such as via telephone.

The Department also indicated that collectors could create a single time-barred debt disclosure and a single itemized debt disclosure to comply with its regulations as well as New York City’s debt collection rules, which the Department views as different but not inconsistent.

The Department plans to release additional guidance in the coming weeks. The regulations take effect in two parts, on March 3, 2015, and August 30, 2015. (See our prior alert on the regulations here.)