Changes are coming to New York’s regulations surrounding third-party debt collection this year. In late 2022, the New York Department of Financial Services (NYDFS) released its collection rule amendments to their “Debt Collection by Third-Party Debt Collectors and Debt Buyers.” The rule amendments will take effect 180 days after the notice of adoption is published in the New York state register.
Ostensibly, the amendments seek to “align the Department of Financial Services’ regulations with those requirements enacted by the [CFPB] in Regulation F,” according to Troutman Pepper’s Consumer Financial Services Law Monitor.
However, as is typical for New York and other consumer-friendly states, the proposed amendments are more restrictive than those at the federal level.
Here are the two proposed amendments with the biggest potential impact:
Prohibition of communications after the Statute of Limitations has expired
Collections strategy for out of statute debt is already complicated, since in most cases, these accounts have already been through a digital strategy and won’t be eligible for a legal strategy. They also require additional disclosures to collect in writing in some states.
The proposed amendment prohibits oral communications, “by telephone or otherwise” regarding a debt for which the applicable statute of limitations has expired. “Oral communications are only allowed if the debt collector receives ‘prior written consent’ or has the express permission of a court to contact the debtor.”
While this proposed amendment only applies to collections in the state of New York, typically NYDFS is a trend-setter among consumer-friendly states, and could lead to additional restrictions on out of statute debt. Creditors should focus on establishing payments early in the collections process for accounts which originate in New York, and stay alert in case more jurisdictions adopt this change.
More restrictions on electronic communications
While Regulation F provided a framework for debt collectors to use electronic communications to reach consumers, the new amendments to New York’s debt collection rule only allow for electronic communications in certain circumstances, “such as when the consumer has voluntarily provided contact information to the collector, and when the consumer has given revocable consent in writing to receive electronic communications.”
This amendment poses additional challenges to third parties collecting consumer debt in New York. It’s more restrictive than Regulation F, which doesn’t require consent to send consumers text messages regarding debts.
Third-party agencies collecting in the state of New York must be able to adjust to these additional restrictions while still maintaining performance. Creditors should ensure their vendors have a plan in place to mitigate the impact of this amendment on their operations, especially in the event that other states decide to follow New York’s lead.
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