The New York Department of Financial Services (DFS) has proposed new regulations that would impose significant disclosure and other requirements on persons engaged in the collection of consumer debts. The proposed regulations are far-reaching and substantially more burdensome than the requirements of the federal Fair Debt Collection Practices Act (FDCPA).
Under the definition of "debt collector," the regulations would include debt buyers and any person "engaged in a business with the principal purpose of collecting or attempting to collect debts" or "who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." As a result, the regulations would apply not only to third-party debt collectors and debt buyers, but also to servicers collecting current debts owed to others who generally are not subject to the FDCPA.
The covered entities would include both banks and nonbanks that qualify as "debt collectors." The DFS has indicated that in issuing the proposal, it relied on its authority in the New York Financial Services Law (FSL) to prescribe regulations "involving financial products and services." Under the FSL, the DFS may not regulate financial products or services if its rules would be preempted by federal law. Accordingly, if the proposed regulations were deemed to be state debt collection laws that are saved from preemption under Office of the Comptroller of the Currency regulations, the proposal would apply to national banks and federal savings banks.
The scope of the regulations does not appear to be limited to debt collectors located in New York. Nothing in the FSL expressly provides that DSF regulations "involving financial products and services" can only apply to entities located in New York. As a result, if the proposal is adopted, the DFS could take the position that the regulations apply to debt collectors collecting debts from New York residents without regard to the debt collector’s location.
The only apparent limitation in the proposal’s scope is that it defines the term "debt" to only include obligations that involve an extension of credit. As a result, it appears most medical debts would not be covered since they typically do not involve an extension of credit. The proposal also provides that the term "debt" does not include an obligation that "arises out of credit extended directly to a consumer exclusively for the purpose of enabling that consumer to purchase consumer goods or services directly from the seller." It appears this language is intended to exclude retail installment sales contracts or other financing directly provided by sellers.
If adopted, the proposal would add a layer of new requirements that are not part of the FDCPA. See our website for a detailed description of the proposed requirements.
The proposal will be subject to a 45-day comment period following its publication in the New York State Register. Companies collecting debts from New York consumers should consult with legal counsel to review the proposal’s requirements and for assistance in commenting on the proposal.