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Debt Collection

Introduction

Debt collection continues to be a popular subject of consumer complaints received by federal and state consumer protection agencies. The federal Fair Debt Collection Practices Act (FDCPA), which was passed in 1977, is intended to prevent abusive, deceptive, and unfair debt collection practices in the marketplace. The FDCPA applies to those who collect debts owed to creditors. This includes personal loans for family members, cars, homes, credit card and medical bills.

Click on the link below to find more information about this topic.

• What Entities Are Considered Debt Collectors?
• Consumers’ Rights Under the Federal Fair Debt Collection Practices Act
• State Debt Collection Law
• New State Law
• When the Creditor is Collecting a Debt
• Validating a Debt
• Debt Validation Letters
• Enforcing a Judgment
• Freezing Bank Accounts
• Debt Collection Procedures Related to Identity Theft
• Debt Obligations of Co-Signers
• Consumer/Debtor Complaints
• Debt Management Assistance
• Common Debt Collection Questions and Problems
• Sample Letter to Stop Debt Collection Calls
• Sample Letter to Cease and Desist Debt Collection Calls

What Entities Are Considered Debt Collectors

A debt collector is a person who conducts business with the purpose of collecting any debts or enforcing security interests, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. The term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. The term does not include:

1. Employees collecting debts for creditors;
   
   
2. Affiliates acting as debt collectors for an affiliate entity;
   
   
3. Officers or employees of the United States or any state government, so long as it is a part of his or her official duties;
   
   
4. Process servers;
   
   
5. Nonprofit organization credit counselors; and,
   
   
6. Any person collecting or attempting to collect debt owed or asserted to be owed to another to the extent such activity:

i    Is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement;
ii   Concerns a debt which was originated by such person;
iii  Concerns a debt which was not in default at the time it was obtained by such person; or,
iv  Concerns a debt obtained by the person in a commercial credit transaction involving the creditor.

Consumers’ Rights Under the Federal Fair Debt Collection Practices Act

§ 15 U.S.C. § 1692 et seq.

The federal law prohibits a debt collector from engaging in the following activities:

• Contacting the consumer at unreasonable times or places, for example, before 8 AM or after 9 PM, unless previously agreed upon, or at work, if the consumer expresses to the debt collector that his or her employer disapproves.
• Contacting the consumer’s friends, relatives, employer or others to tell such people that the consumer owes money. The debt collector can contract such people only to find the location of the consumer.
• Harassing consumers by threatening to harm their reputation, using profane language, or making repeated telephone calls.
• Making any false statement, including that the consumer will be arrested.
• Threatening to have money deducted from the consumer’s paycheck or to sue him or her, unless the debt collector or creditor actually intends to do so and it is legal to do so.

Debt collectors are also prohibited from:

• Giving false information about the consumer to anyone, including a credit bureau;
• Using a false name, or engaging in any unfair practices such as collecting any amount greater than the consumer’s debt (unless the state permits such a charge);
• Depositing a post-dated check prematurely;
• Using deception to make the consumer accept collect calls or pay for telegrams;
• Taking or threatening to take a consumer’s property (unless this can be done legally); or,
• Contacting the consumer by postcard.

State Debt Collection Law

§ N.Y. General Business Law §§ 349, 600, 601, 603

New York law differs from the FDCPA, but the premise is the same -- to protect consumers who owe debts, or are believed to owe debts, from harassment, improper contact, and threats. If the New York provisions are violated by debt collectors or creditors, the New York State Attorney General is authorized to proceed against the violators. However, New York courts have found that, in instances where the collection of consumer debt has overlapped with deceptive and unfair practices, under the New York Consumer Protection Act (N.Y. General Business Law § 349), a consumer can file a private lawsuit against the company.¹

Under the New York State Debt Collection Law² no creditor can:

• Pretend to be a law enforcement officer, or a representative of any governmental agency of the State; or
• Disclose, or threaten to disclose information affecting the debtor’s reputation for creditworthiness knowing that this is information could be false or that the existence of the debt has been disputed; or
• Communicate or threaten to communicate the nature of a consumer claim to the debtor’s employer prior to obtaining final judgment against the debtor. However, a principal creditor may communicate with the debtor’s employer to execute a wage assignment agreement if the debtor has consented to such an agreement; or
• Communicate with the debtor, or any member of his family or household, with such frequency, or at such unusual hours, or in such a manner as can reasonably be expected to abuse or harass the debtor; or
• Threaten any action which the principal creditor in the usual course of his business does not in fact take; or
• Use a communication which simulates in any manner legal or judicial process or which gives the appearance of being authorized, issued, or approved, by a government, governmental agency, or attorney at law when it is not.

New State Law

§ N.Y. Civil Practice Law and Rules §§ 5222, 5230, 5231

A New York State law enacted in 2008 protects consumers from debt collectors with judgments and provides that such judgments will not attach to twenty-five hundred dollars ($2,500) of a consumer’s Social Security, retirement or other such statutory exempt payments, simply because those payments are received and deposited through electronic means or by direct deposit into their bank account. The bill provides clear direction to debtors on what actions they must take to remediate and respond to an execution notice and offers a prescribed exemption notice for the debtors to send in response. If the judgment debtor believes a bank is attaching an account with exempted funds in it, they should complete an exemption form and return it to the banking institution and judgment creditor within twenty (20) days of the initial action. If the judgment creditor objects to the judgment debtors claim of exempt funds, there is a court procedure which ensures to determine whether or not the funds are exempt. The law also provides numerous legal safeguards for judgment debtors and due process measures for judgment creditors. This twenty-five hundred dollar ($2,500) monthly safeguard is often necessary to preserve a judgment debtor’s ability to provide for his or her monthly housing, food, and transportation costs.

When the Creditor is Collecting a Debt

Often times, creditors themselves will contact a consumer directly about a debt. An example of this would be a credit card company calling to remind customers that they haven’t been making the minimum payments necessary to keep the account from defaulting. Unfortunately, federal consumer protection laws regarding fair debt collection do not apply in these situations. Instead, the actions of creditors collecting a debt are regulated by New York State law. Consumer protections provided through the New York State Debt Collection Procedures Law are listed above and apply to both creditors themselves, and debt collectors.

Validating a Debt

If a consumer/ debtor makes the request for proof of the debt in writing, a debt collector must validate the debt before continuing to collect on the account. Validating a debt could consist of obtaining a printout of the account statement, which informs the consumer of the services provided, the dates on which the charges were incurred, and the amount of debt. A debt collector may be entitled to rely on the information provided by its client. Sending a copy of the contract may not be sufficient.

If a consumer disputes the debt, the debt collector must notify the credit reporting agencies of this fact. Otherwise, this is a violation of the Fair Credit Reporting Act, which a consumer could report to the Federal Trade Commission, or bring an individual lawsuit.

Debt Validation Letters

§ 15 U.S.C. § 1692g

A debt validation letter is sent to the consumer from the creditor to inform the consumer of his or her debts. It must contain: a “mini — Miranda” warning that states, “We are attempting to collect a debt and any information obtained may be used for this purpose”; the debt amount (including interest); the creditor’s name; a statement that the debt is assumed to be valid unless the consumer disputes all or a part of the debt within thirty (30) days; and, a statement that on written request, the debt collector will provide the original creditor’s name and address.

Enforcing a Judgment

Once a creditor obtains a judgment in court, it then can enforce a judgment through a variety of means such as:

• Liens (the legal claim of one person upon the property of another person to secure the payment of a debt or the satisfaction of an obligation) on real property;
• Wage garnishments (a process granted by a court order by which a lender obtains, directly from an employer, part of the salary of an employee who is behind in payments to the lender) or,
• Execution of personal property (including bank accounts).³

Freezing Bank Accounts

§ N.Y. Civil Practice Law and Rules § 5222

To freeze a bank account, the creditor needs to serve a bank with a court order. In New York, it is called a “restraining notice” or an “execution.” The restraining notice may be accompanied with an information subpoena (an official notice requiring someone to appear in court) requiring the bank to answer questions about the account, such as: account balance, name of employer, and whether there are exempt funds in the account. Statutorily EXEMPT monies include:

• Social Security/SSI ⁴
• Unemployment benefits ⁵
• Veteran’s payments ⁶
• Child Support payments ⁷
• Worker’s Compensation payments⁸
• Most private pensions ⁹

Debt Collection Procedures Related to Identity Theft

§ N.Y. General Business Law §§ 604, 604-a, 604-b

Recently, New York State law was amended to prohibit debt collection against debtors who are victims of identity theft. Under the law, the debtor who is alleging to be a victim of identity theft must present notification to the “principal creditor”, or any other debt collector pursuing collection, that includes a copy of a valid police report alleging the debtor is a victim of identity theft, and a written statement that the debtor claims to be a victim of identity theft.

Upon notification by the consumer that the debt arose from identity theft, the principal creditor must temporarily stop attempts to collect the debt and pursue an investigation of the case. The principal creditor must review the information in good faith, and then determine whether it establishes that the debtor is not responsible for the debt in question. The principal creditor’s determination shall be made in a manner consistent with the provision of 15 U.S.C. 1692f(1). ¹⁰ If the principal creditor decides the information provided is insufficient to establish that identity theft is the cause for the debt in question, such creditor may continue debt collection activities. However, the principal creditor must notify the debtor in writing of the determination before beginning any further debt collection activities.

If the principal creditor recognizes the debtor/consumer as a victim of identity theft and ceases collection activities, the principal creditor must within five (5) business days of the decision to cease collection activities, notify any consumer reporting agencies to which the principal creditor has furnished adverse information about the debt in question. These agencies then must delete such information and notify the creditor that debt collection activities have been terminated based upon the debtor’s claim of identity theft. When a principal creditor violates any provisions of the Act it is subject to enforcement by the NYS Attorney General. Violations of the Act will result in penalties which may include an injunction to cease any further violation, without showing any proof of harm or damage; or a monetary fine between five hundred ($500) and one thousand dollars ($1,000) per violation.

Debt Obligations of Co-Signers

§ N.Y. General Obligations Law §§ 15-701, 15-702
§ N.Y. U.C.C. Law § 3-416

Car dealers as well as furniture and appliance retailers often require co-signers in connection with credit transactions. Frequently, the co-signer enters into the obligation without a full understanding of his or her potential liability, thinking that he or she is merely acting as a reference for a friend or family member. However, he or she is signing as an actual lendee and can be held entirely responsible for the full amount of the debt.

The co-signer is fully responsible for payment of the debt regardless of who holds title or whether the creditor has exhausted or has even begun to try collecting against the other co-signer. A debt collector can pursue the co-signer before even the primary co-signer who holds true possession of the debt is pursued. A debt collector will generally pursue the co-signer who generally has greater assets. Both co-signers must be aware of their liability. The New York General Obligations Law requires the creditor to give a co-signer a completed copy of the contract or other document describing the obligation. Prior to signing the contract, the co-signer must be given written disclosure, in at least 10-point type, attached to or part of the contract, explaining that:

• The co-signer is agreeing to pay the debt although he or she may not be receiving the goods or services.
• The co-signer may be sued on the obligation, even if the primary signer is able to pay.
• The co-signer may also be liable for additional fees, including finance and delinquency charges, attorney’s fees (if applicable), and court costs.¹¹

Consumer/Debtor Complaints

To file a complaint, contact the New York State Consumer Protection Board, Federal Trade Commission, the New York State Attorney General, or the district attorney of any county. Contact information is below:

New York State Attorney General
Consumer Frauds & Protection Bureau
120 Broadway, New York, NY 10271
1-800-771-7755
www.oag.state.ny.us

Federal Trade Commission
Consumer Response Center
Washington, D.C. 20508
1-877-382-4357
www.ftc.gov

New York State Consumer Protection Board
5 Empire State Plaza, Suite 2101
Albany, New York 12223
1-800-697-1220
www.consumer.state.ny.us/

Debt Management Assistance

Several national non-profit organizations also provide information and assist people with debt problems in person, via the phone, or via the Internet. Consumers who feel debt management assistance would be helpful should seek advice from non-profit companies.