The New York Department of Financial Services (NY DFS) has continued its years-long process to update its debt collection regulations. According to the Consumer Relations Consortium (CRC), however, the current version of the proposal conflicts with existing law, oversimplifies the statute of limitations, and harms consumers by depriving them of their preferred communication channel and prohibiting the use of the charge-off date on certain types of accounts.
The NY DFS originally proposed amendments to the debt collection regulations in late 2021. In February 2022, the CRC submitted a comment addressing the issues with the proposal, and in late December 2022, the NY DFS released an updated proposal.
To highlight the unintended consequences of the updated proposal, on February 13, 2023, the CRC submitted a comment prepared by Legal Advisory Board members John Rossman of Moss and Barnett and Abigail Pressler of Ballard Spahr. CRC member, Kelly Knepper-Stephens of TrueAccord also contributed.
The CRC's comment raised the following concerns:
Conflict with existing law
the ADA- compliant letter format included in the proposed amendment conflicts with existing New York Law. Specifically, the proposed regulations require debt collectors to provide notice in a format requested by the consumer. However, a separate New York law (NY GBL 601-b) requires the consumer may request certain notices in a reasonably accommodating format selected by the principal creditor or debt collector. The CRC recommended that the NY DFS address this conflict in future updates to the proposal.
The Statute of Limitations is complex
If left unchanged, the proposed amendment would require debt collectors to advise consumers of "the applicable statute of limitations for the debt, expressed in years." The CRC pointed out that this is a legal question that requires contract review and conflict of law analysis to determine at the individual account level. The CRC then referred NY DFS to a study by the Consumer Financial Protection Bureau (CFPB) that suggested an alternative statute of limitations disclosure; one which does not require legal analysis on every account.
Prohibiting use of charge-off date harms consumers
Though the current version of the New York debt collection regulations require debt collectors to provide debt itemization "as of charge-off" the proposed amendment limits the use of the charge-off date only to revolving or open-end credit accounts. For all other types of accounts, collectors would be required to use the last payment date if it is available. In its comment, the CRC explained that charge-off date is the best option for consumers because it is a static, well-defined date, and is more recent than the last transaction. Further, because this proposal is in direct conflict with Regulation F and with the current rule, there is an increased risk of consumer confusion.
Digital communications limits harm consumers
The current iteration of the proposed amendment restricts digital communication methods. In its comment, the CRC described why these types of restrictions harm consumers. The CRC explained that Digital communications channels increase consumer protection. Email addresses are not reassigned, therefore using email has far less risk of third-party disclosure. Digital communications are written, documented, and can be searched, ensuring consumers have records of all their communications regarding the debt. Further, the more channels available to reach consumers, the greater the likelihood they will receive crucial disclosures.
Most importantly, consumer behavior indicates they want to communicate via digital channels. They want consistency and they want to be able to communicate in the same manner which they did with the creditor. Restricting electronic communication means there is no "easy path" for those who want to take care of their debt; they will always, at some point, need to get on the phone with someone. This prevents consumers from resolving their debts early and leads directly to credit score degradation and increased litigation.
The CRC's full comment can be found here.