New York Debt Collection Laws – What You Should Know

by ECL Writer
New York Debt Collection Laws

New York State has its own debt collection laws in addition to federal statutes. In order to better safeguard consumers, New York has changed the rules governing debt collection. The updated rules become effective in August 2015. Only debt buyers or collection firms are subject to these new laws. They do not apply to the collection of debts owed by businesses or to an original creditor who is collecting its own debts.

Debt-buying companies are becoming more and more common. But the business of buying debts is infamous for having scant to no information about the debts it buys and tries to collect. Debt collectors frequently attempt to collect debts that have already been settled or paid (referred to as “zombie” debts since they never disappear) or for which the statute of limitations (the deadline by which the debt collector must file a lawsuit against you) has long since expired. New York seeks to stop some of these abuses and give customers more knowledge about the debts that are being pursued by including debt purchasers in the new law.

In this article, Eastcoastlaws.com will outline all you need to know about New York debt collection laws.

New York Debt Collection Laws

The Fair Debt Collection Practices Act (FDCPA) and state regulations govern debt collection practices in New York. Every state must comply with the FDCPA, which shields customers from unfair and dishonest debt-collection tactics. To eliminate abusive debt collection tactics in New York, Governor Kathy Hochul signed the Consumer Credit Fairness Act (S.153/A.2382) into law on November 8, 2021. This New York legislation specifically governs litigation brought for debt collection.

For instance, New York’s Consumer Credit Fairness Act reduces the previous six-year statute of limitations to three years for the majority of debt collection activities, and it states that a payment on a debt does not start over or extend the deadline. Additionally, it mandates that a creditor or collector offer specific information regarding a lawsuit pertaining to debt as well as information on how to fight a case for debt collection.

How Does The Federal Fair Debt Collection Practices Act Protect Debtors?

The Federal Fair Debt Collection Practices Act (FDCPA) protects debtors from harassment and abuse by debt collectors. The act sets out rules for how debt collectors must behave when collecting debts, including:

  1. Contact restrictions: Debt collectors may not contact a debtor before 8 a.m. or after 9 p.m. unless the debtor agrees to it. They may not contact the debtor at their place of employment if the debtor’s employer prohibits it.
  2. Communication restrictions: Debt collectors may not use threatening, harassing, or abusive language when communicating with debtors. They may not use false or misleading information to collect a debt.
  3. Verification of debt: Debt collectors must provide debtors with written verification of the debt they are trying to collect.
  4. Limitations on third-party communications: Debt collectors may not discuss a debtor’s debt with third parties, such as family members or coworkers, without the debtor’s permission.
  5. Cease-and-desist letters: Debtors may send a written cease-and-desist letter to a debt collector to stop communication. The debt collector must comply with the request.

The FDCPA provides debtors with the right to take legal action against debt collectors who violate the act. If a debt collector is found to have violated the FDCPA, the debtor may be entitled to actual damages, such as monetary compensation for mental distress, and statutory damages, which can reach up to $1,000 per violation.

Also Read: SALES TAX NEW YORK – ALL YOU NEED TO KNOW

Who Does the FDCPA Apply To?

The Federal Fair Debt Collection Practices Act (FDCPA) applies to debt collectors who are collecting debts on behalf of another person or entity. The FDCPA does not apply to the original creditor, only to third-party debt collectors.

A debt collector is defined as any person who regularly collects or attempts to collect debts owed to others. This includes collection agencies, debt buyers, and attorneys who collect debts as part of their practice.

The FDCPA applies to consumer debts, such as credit card debts, medical debts, and personal loans, but it does not apply to debts incurred for business purposes.

It is important for consumers to understand their rights under the FDCPA and to be aware of the actions that debt collectors are prohibited from taking. Consumers who believe that a debt collector has violated the FDCPA can file a complaint with the Federal Trade Commission (FTC) or take legal action against the debt collector in court.

About a Collections Lawsuit Required

According to the Consumer Credit Fairness Act, a creditor must serve the debtor with an additional notice in addition to the summons and complaint in any ongoing legal proceedings based on a “consumer credit transaction,” such as a lawsuit to recover past-due credit card debt.

The notice must detail, among other things:

  • the consequences of not responding to the pending lawsuit, and
  • resources that are available to help you defend against the action, such as seeking assistance from a private attorney, a legal aid office, or a free legal assistance computer program that you can use online to help you represent yourself in the lawsuit. (N.Y. C.P.L.R., § 306-d).

The law also prevents creditors from getting a default judgment (an automatic win) if the notice is undeliverable. The Consumer Credit Fairness Act further provides that even if you receive the notice, if the service of the lawsuit is improper, you have a defense to the suit. (N.Y. C.P.L.R., § 306-d).

The plaintiff (the party that filed the suit) has to provide a similar notice if it files a motion for summary judgment. (N.Y. C.P.L.R., Rule 3212).

A Collections Lawsuit Must Include A Copy of the Underlying Contract or Agreement

According to this law, if a claim is based on a defaulted credit card, the complaint must also provide a copy of the credit transaction’s underlying contract, loan agreement, or charge-off statement. The last payment date and amount, the name of the original creditor, the last four digits of the account number, and an itemization of the amount allegedly owed broken down into principal, finance charges, fees, and costs must all be included in the complaint. (New York CPL Rule 3016).

To get a default judgment, if the plaintiff isn’t the original creditor, the lawsuit also has to include:

  • an affidavit by the original creditor setting forth facts about the underlying debt, the default, the amount due, the sale or assignment of the debt, and the amount due at the time of sale or assignment
  • for each subsequent assignment or sale of the debt to another entity, an affidavit of sale of the debt by the debt seller, completed by the seller or assignor, and
  • an affidavit of a witness of the plaintiff, which includes a chain of title of the debt, completed by the plaintiff or plaintiff’s witness. (Y. C.P.L.R., § 3215).

Also Read: NEW YORK ESTATE TAX – ALL YOU NEED TO KNOW

Statute Of Limitations In New York For Debt

Most legal proceedings involving a consumer credit transaction must be initiated within three years according to the Consumer Credit Fairness Act (typically, this means three years from when the debtor defaults on the obligation). (New York CPL Rule, 214-i). The statute of limitations was six years before this law became operative (see below for more information).

Any additional payments made, written or verbal affirmations made, or other actions taken in relation to the debt after the applicable statute of limitations has passed won’t revive or extend the deadline. (New York CPL Rule, 214-i). (In some areas, a debtor who pays off part of a debt or otherwise admits to owning an unpaid amount might extend a statute of limitations.)

Additionally, if the plaintiff asks for a default judgment, the request must be supported by an affidavit declaring that the plaintiff has a good faith belief that the statute of limitations hasn’t run. (New York CPL Rule 3215).

Can Debt Collectors Sue You In New York?

Yes, debt collectors can sue you in New York if they believe that you owe a debt and you have not made satisfactory arrangements to repay it. The debt collector must first notify you in writing of the debt and the amount owed, and provide you with an opportunity to dispute the debt. If the debt is not disputed, the debt collector may file a lawsuit against you in court.

It is important to note that the debt collector must file the lawsuit within the statute of limitations for the type of debt involved. In New York, the statute of limitations for debt collections varies depending on the type of debt but generally ranges from 3 years.

If a debt collector files a lawsuit against you, you will receive a summons and complaint that informs you of the allegations against you and the date and time of the court hearing. It is important to respond to the lawsuit by the deadline set in the summons, either by contesting the debt or reaching a settlement with the debt collector. If you do not respond, the debt collector may obtain a default judgment against you, which allows the debt collector to take legal action to collect the debt, such as wage garnishment or bank seizure.

Consumers who have been sued by a debt collector should seek advice from a qualified attorney to understand their rights and obligations, and to determine the best course of action to resolve the debt.

Can You Go To Jail For Debt In New York?

No, you cannot go to jail for debt in New York. It is illegal for debt collectors to threaten or use jail time as a means of collecting a debt.

The practice of jailing debtors for failing to pay debts was abolished in the United States in the 19th century. Today, consumers who are unable to pay their debts are protected by consumer protection laws, such as the Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive, unfair, or deceptive practices to collect debts.

If a debt collector violates the FDCPA, the consumer may take legal action against the debt collector and may be entitled to recover damages, including the cost of the lawsuit, attorney’s fees, and actual damages, such as emotional distress.

Can Creditors Take Your House In NY?

Yes, creditors can take your house in New York to collect a debt, but only if they obtain a court judgment and follow the proper legal procedures for execution and foreclosure.

A court judgment is a legal ruling that states that a debt is owed and that the creditor has the right to collect the debt. To obtain a court judgment, the creditor must first file a lawsuit against you and prove that you owe the debt. If the court rules in the creditor’s favor, the creditor may obtain a judgment against you for the amount of the debt plus any interest, fees, and costs associated with the lawsuit.

Once the creditor has a court judgment, it may take legal action to collect the debt, including wage garnishment, bank seizure, or property seizure. To take your house, the creditor must follow the proper legal procedures for execution and foreclosure, which involves selling your house to pay off the debt.

It is important to note that certain types of property, such as your primary residence, may be protected by exemptions under New York law. This means that the creditor may not be able to take your house, or may only be able to take a portion of your equity in the house, to collect the debt.

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