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Common Debt Collection Questions and Problems
Can a consumer stop a debt collector from contacting them? A consumer can stop a debt collector from contacting them by writing a letter to the collector. The consumer should send the letter with a certified return receipt requested for proof of receipt. Once the collector has received the letter, they may not contact the consumer again except to say that there will be no further contact, or to notify the consumer that the debt collector or creditor intends to take some specific action (i.e., the consumer may be sued, or, his or her wages may be deducted by the amount owed to satisfy the debt).
May a debt collector continue to contact a consumer if the consumer believes he or she does not owe any money, and is disputing the debt? A collector may not contact a consumer or continue any collection activities, if, within thirty (30) days after the consumer receives written notice of the debt, he or she sends the collection agency a letter (recommended with a certified return receipt request) stating that all or part of the debt is being disputed. However, a collector can start collection activities again if a consumer is sent proof which verifies the debt, such as a copy of a bill for the amount owed.1 For more information about disputing a debt, and debt validation, please refer to the Consumer Protection Board’s Consumer Law Help Manual Chapter entitled “Debt Collection.”
When a consumer sends the debt collector a dispute letter what should they expect? Consumers should note that sending a dispute letter to a collector does not make the debt go away if the consumer actually owes it. The consumer can still be sued by the debt collector or creditor.2 The Fair Debt Collection Practices Act also mandates that, if a consumer submits a dispute in writing, the collector must cease collection efforts until it has provided written verification of the debt. There is no time limit for a debt collector to validate the debt.
What control does a consumer have over payments of debts? If a consumer owes more than one debt, any payment made must be applied to the debt that was identified. A debt collector may not apply a payment to any debt that the consumer has not indicated that he or she owes. 3
Can debt collectors demand full payment even though they know the agency or creditor will in fact accept partial payments?
Yes. A collector may ask for full payment. However, if the consumer suggests a
partial payment and the collector, knowing that the agency or creditor will
accept partial payment, tells the consumer that only full payment is acceptable,
the collector has clearly violated the federal Fair Debt Collection Practices
Act. This Act "prohibits the use of any false representation or deceptive means
to collect or attempt to collect any debt or to obtain information concerning a
consumer." 4
Can debt collectors add surcharges (interest, fees, charges or expenses) to the original debt? No. The federal Fair Debt Collection Practices Act prohibits collecting any amount unless the charge is expressly authorized by the agreement creating the debt, or is permitted by law.5
Consumers should check their contract for the authorizations of any additional charges before signing the agreement.
A debt collector may attempt to collect a fee or charge in addition to the debt if either:
(a) the charge is expressly provided for in the contract creating the debt and the charge is not prohibited by state law, or
(b) the contract is silent but the charge is otherwise expressly permitted by state law.
Conversely, a debt collector may not collect an additional amount if either:
(a) state law expressly prohibits collection of the amount; or
(b) the contract does not provide for collection of the amount and state law is silent.
New York law prohibits a creditor from knowingly collecting, attempting to collect, or asserting a right to any collection fee, attorney’s fee, court cost, or expense unless such assessments are justly due and legally chargeable against the debtor. 6
A debt collector may establish an "agreement" without a written contract. For example, he or she may collect a service charge on a dishonored check based on a posted sign on the merchant's premises allowing such a charge, if the collector can demonstrate that the consumer knew of the charge.
If a consumer pays a debt collection agency the full amount owed, how will his or her credit report be affected? In this situation, the consumer’s account will show a zero balance, but it will still have a notation explaining it was paid unsatisfactorily. Whether the consumer pays the full balance or pays a lesser amount agreed upon by the debt collector, an adverse notation generally remains on the consumer’s credit report for seven (7) years from the date the account was charged off as uncollectible. If a debt collector tries to convince a consumer that the payment will remove all negative notations associated with that account from the consumer’s credit report, the collector should send this commitment in writing to the consumer.
Is there a statute of limitations (a time period from which collectors can request payments) on debts in New York State? Yes. Generally in New York a creditor has six (6) years, starting from when the last payment was due and not paid, to sue a debtor to collect on the amount owed. Although a creditor may attempt to sue a debtor after this period of time, the creditor may not be successful. If a consumer is contacted about debt that is “older” than six (6) years, he or she can advise the collection agency that the debt will be paid only if a court finds that he or she currently owes such amounts. Creditors are increasingly selling their old “charged off” accounts to collection agencies for pennies on the dollar. The collection agencies attempt to obtain payment on these accounts. This practice is legal.
Does making a payment restart the clock on the six year statute of limitations?
- Generally no, the consumer must instead show a clear intention to reaffirm the debt.
- Basically, the debt collector would need to obtain an acknowledgment or promise in writing, signed by the consumer, which recognizes an existing debt and contains nothing inconsistent with an intention on the part of the debtor to pay it.7 Or, the debtor must acknowledge that payment has been paid and from there a promise to pay the remainder may be inferred. 8 It is up to the creditor to establish this inferred agreement.
What if the debtors’ bank charges fees to implement the restraining notice? This practice is permitted. Under the contract the consumer has with the bank, the bank is able to charge these fees. However, the bank may refund the amount of the fees for public relations purposes. Thus, a consumer must inquire.
What if the account has both exempt (i.e. Social Security) and non-exempt funds? This situation is also known as "having commingled funds." In this scenario, the exempted funds are still exempt from collection, even though they are mixed with other, non-exempt funds. However, even though these funds are still exempt, it is often difficult to persuade a debt collector to release the account. While the bank is entitled to freeze non-exempt funds, it cannot freeze the exempt funds so long as they are traceable. New York, like most states follows the first in, first out, method for determining the type of money in the account. This is an asset-management and valuation method in which the assets produced or acquired first are sold, used or disposed of first. The first in, first out rule may be used by an individual or a corporation. 11
What if the debtor establishes that the money is exempt and the creditor still will not give it back? If a consumer believes that any of the money that has been taken or held from them is exempt, they should act promptly because the money may be applied to the judgment or order. If a consumer sends the creditor’s attorney proof that the money in the account is exempt, the attorney must release that money within seven (7) days.12 If a consumer can establish through notice of a completed form, that either the entire or a portion of the account is exempt and the creditor still will not release the exempt money, the consumer should consult an attorney. Consumers may also go to court without an attorney after filing a motion, and then submitting to the judge proof that the money is exempted from collection. 13 Proof would include an award letter from the government, an annual statement from one’s pension, pay stubs, copies of checks, bank records displaying the last two months of account activity, or other papers showing that the money in the bank account is exempt.
What if the debt collector says that the consumer owes more than the consumer believes that he or she owes? The amount a consumer owes is governed by the terms of the contract. Under the contract, the creditor may be able to charge attorney fees, costs, and interest. Even if there is no contract between the parties, the creditor is entitled to charge 9% interest on the overdue debt. After judgment is entered, the judgment creditor can also charge 9% interest on the judgment and recover costs of filing the lawsuit. A debtor/consumer who thinks the debt is too high should request an accounting or statement, which should itemize the amount owed. The debtor should also ask for a copy of the relevant contract if the interest charged is more than 9% or the debt collector is trying to recover attorney’s fees or “collection fees.”14
Does a consumer have the right to be notified in writing of the debt? Yes. If a consumer is contacted by a debt collector, he or she is required to receive written notice, sent within five (5) days after he or she is first contacted, advising of the amount owed, the name of the original creditor, and what action to take if the consumer believes he or she does not owe the money. If the consumer does not owe the money, or the amount claimed, he or she should contact the creditor in writing and send a copy to the debt collection agency with a letter telling them not to contact him or her. A sample letter to send to the creditor disputing the debt is found at the end of this resource.
What can the consumer do if he or she believes a debt collector has violated the law? If a consumer believes a debt collector has violated the law, he or she has the right to sue a collector in a state or federal court within one (1) year from the date the law was violated. If the consumer wins, he or she may recover money for the damages suffered plus an additional amount up to $1,000 per violation. Court costs and attorney’s fees also can be recovered. 15
What if a debtor or a consumer never got served with a lawsuit and now the creditor or debt collector has a judgment? The creditor likely obtained a default judgment against the debtor. To lift it, the debtor must prove to the court (1) lack of notice about the lawsuit; and (2) a meritorious defense.16
Where should consumers go to file a complaint? When there have been debt collection violations by the creditor or debt collector, the consumer has several opportunities to seek legal redress. For violations by the creditor, consumers can complain to the Office of the NY State Attorney General. It should be noted that a consumer cannot bring an individual action against a creditor. However, for violations by the debt collector, consumers should complain to either the FTC or the Office of the NYS Attorney General. In addition, the consumer can file a lawsuit against the debt collector, if the violations are within the one year statute of limitations period. If the consumer wins, he or she is entitled to:
- $1,000 penalty per violation;
- Actual damages (lost wages, emotional distress damages, etc.); and,
- Reasonable attorney’s fees and costs.
up2Id.
up3Id.
up415 U.S.C. § 1692e (2008).
up515 U.S.C. § 1692f (2008).
up6N.Y. Gen. Bus. Law § 601 (2008).
up7N.Y. General Obligations Law § 17-101 (2008)
up8Lew Morris Demolition Co., Inc. v. Board of Ed. Of City of New York, 40 N.Y.2d 516, 387 N.Y.S.2d 409, 355 N.E.2d 369, 10 A.L.R.4th 925 (1976); Flynn v. Flynn, 175 A.D.2d 51, 572 N.Y.S.2d 307 (1st Dept. 1991); Commissioners of State Ins. Fund v. Warner, 156 A.D.2d 131, 548 N.Y.S.2d 883 (1st Dept. 1989); Zuckerman v. 234-6 W. 22 Street Corp., 167 Misc. 2d 198, 645 N.Y.S.2d 967 (Sup. Ct. 1996).
up9See NCLC’s Collection Actions § 3.7.2.1. (2008).
up10See Pereira v. United Jersey Bank, N.A., 201 B.R. 644 (S.D.N.Y. 1996).
up11See Stahl v. Stahl, U.S. Dist. LEXIS 21375 (S.D.N.Y. 1984); see also Le Chase Data/Telecom Servs., LLC v. Gobert, N.Y. Slip Op 1247, 7 (N.Y. 2006); I-T-E Imperial Corporation-Empire Div. v. Bankers Trust Co., 73 A.D.2d 861 (1st Dept. 1980).
up12N.Y. Civil Practice Law and Rules § 5205 et seq. (2009).
up13Id.
up14N.Y. Civil Practice Law and Rules § 5001 et seq. (2008).
up15http://ftc.gov/bcp/edu/pubs/consumer/credit/cre18.shtm (last visited August 12, 2008).
up16See N.Y. Civil Practice Law and Rules § 317; and Siegel, David D. N.Y. Civil Practice, 4th Edition § 427 (2008).