On November 14, 2014, the New York Department of Financial Services (NYDFS) published comprehensive regulations impacting the practices of third-party debt collectors and debt buyers collecting in the state.
Although several sections of the regulation became effective March 3, 2015, the most onerous sections will become enforceable August 30, 2015. Sections pending implementation, including the substantiation and itemization of charged-off debts under Section 1.4 and 1.2 (b), pose unique challenges as they require regulated collection agencies and technically non-regulated creditors to work together to expeditiously exchange significant amounts of confidential data.
Section 1.2(b) requires agencies and debt buyers to itemize charged-off debts within five (5) days of the initial communication. As such, creditors are tasked with providing collection agencies and debt buyers additional data at placement or purchase, including:
- the amount of interest accrued since charge off
- the charge-off balance
- non-interest fees accrued since charge-off
- the name of the original creditor
- total amount of payments since charge-off
Although this may not appear particularly burdensome at first blush, exchanging all data elements correctly requires significant IT resources on both sides. This requirement also has a retroactive impact, as collectors and buyers must itemize debts charged-off and/or purchased prior to the regulation’s adoption. Further, although creditors are under no obligation to provide this information, they are forced by proxy to supply it to their contracted collection agencies on effected placements starting August 30, 2015.
Even more novel and challenging are the substantiation requirements set forth in Section 1.4. The substantiation requirement necessitates that regulated agencies provide consumers with previously non-required information and documentation within sixty (60) days of the consumer’s request. Initially, it was unclear what regulated entities should do in the event the creditor did not have any element of the required information in 1.4 (c)(1-4), or did not provide it at point of purchase. Since the regulation’s release, the NYDFS has released a series of FAQs indicating that closing the account pursuant to the Fair Debt Collection Practices Act (“FDCPA”) was insufficient. Rather, the collection agency and creditor are faced with an awkward catch-22: the non-regulated creditor can agree to waive a potentially valid debt within sixty (60) days of the request, or the collection agency risks enforcement. Again, the NYDFS saddles non-regulated creditors with the burden of providing the collection agency with information and documentation or they risk requests for waiver.
Because ARM companies must rely on creditors to comply with Section 1.2(b) and 1.4, it is our responsibility and obligation to continue communicating with our clients to establish best practices prior to August 30, 2015. ARM companies should also continue to monitor the NYDFS website for additional guidance, updates or FAQS as the NYDFS has done a fantastic job meeting with industry groups prior to the implementation date. One example of recent guidance was an amendment clarifying that the exempt income disclosures in 1.2 (a)(2) and 1.5(a)(2) should both read that laws “may” prevent certain types of income from being taken to pay a debt.
The amendment can be found here: http://www.dfs.ny.gov/legal/regulations/proposed/dfs/dfsrp23a1t.pdf.
ARM companies should read the amended version of the regulation and update their letters accordingly.