New York Gov. Andrew Cuomo has proposed a bill to license consumer debt collectors. The proposal comes as part of the governor’s 2021 “budget bill” and was introduced on Jan. 21. A copy is available here. The bill proposes an effective date of Oct. 1, 2020.
If enacted, it would require anyone acting as a “consumer debt collector” to obtain a license from the New York Banking Superintendent. It defines a consumer debt collector as “any person who engages in a business, a principal purpose of which is the collection of consumer debts or of debt buying, or who regularly collects or attempts to collect, directly or indirectly, consumer debts owed or due to another person.” It would also cover any creditor that “uses any name other than its own which would reasonably indicate that a third person is collecting or attempting to collect a consumer debt.”
No Attorney Exemption
The proposal exempts certain entities such as persons employed by licensed debt collectors and businesses principally engaged in servicing loans “which are not delinquent,” even though their operations include “requesting payment from delinquent consumer debtors.” Also exempt are process servers, non-profits providing consumer credit counseling, national banks and their subsidiaries and entities acting under New York banking law or a New York insurance license. Finally, federal and state authorities are also exempt.
Notably, while the definitions and exemptions are similar to those found in the federal Fair Debt Collection Practices Act, they are not the same and those differences will encompass entities now outside the coverage of the federal law.
And there is no carve-out for attorneys, at least nothing expressly stated. I found this surprising because it is in sharp contrast to the debt collection regulations adopted by the New York Department of Financial Services in 2014. Those regulations contained an express exemption for debt collection litigation activity and there is nothing in the governor’s proposal remotely similar.
Extraordinary Restrictions and Prohibitions – 2/7 Communication Cap – Adverse Impact on the CFPB’s Proposed Rules
Although the prohibitions sometimes mirror those present in the federal Fair Debt Collection Practices Act, the proposal would impose several new, material requirements. The FDCPA permits telephone communications between 8 am and 9 pm, at the consumer’s location. New York would allow calls between 8 am and 8 pm local time.
The federal Consumer Financial Protection Bureau recently proposed a cap related only to telephone calls, allowing seven calls in a seven-day period for each debt (except for certain student loan debt). Under the proposed New York law, a debt collector would be limited to two communications in a seven-day period. The communications are not tied to a particular debt or type of communication. “Communication” is proposed to have the same meaning under the New York proposal as presently exists in the FDCPA. Letters, telephone calls, emails and text messages that “convey information regarding debt, directly or indirectly” would all count towards this cap.
The proposal would also prohibit leaving a “voicemail on to any telephone that is known or which reasonably should be known may be received by someone other than the consumer debtor.” There is no similar restriction in the FDCPA. However, the CFPB has proposed a rule that would allow certain voicemails under a “limited content message.” The objective of the governor’s proposal is to hamper the proposed rule’s use in New York.
And, the real showstopper is the prohibition against communications “by means of electronic communications” which includes but is not limited to “text message, messaging applications on mobile telephones, electronic mail” as well as through Facebook and other social media platforms. Frankly, other than paper correspondence, there are very few forms of communication that are not “electronic communications.”
Again, the CFPB’s proposed rule addressed electronic communications and the manner and form of their delivery. Consumers could opt-out of such communications. The New York proposal would permit any of the prohibited communications with “the prior written and revocable consent of the consumer debtor given directly to the debt collector or the express permission of a court of competent jurisdiction.”
Yet Another Disclosure
The proposal would require debt collectors to “send” the consumer debtor “a notice in writing” within five days of the first communication. Debt collectors would be prohibited from further communications with the consumer debtor if the debt collector “fails to send” the notice. The proposal does not specify the content of the proposed notice, which is left to the superintendent. New York already requires a particular notice in certain instances.
Surety Bond, Records Retention, Annual Reporting
Licensees must post a $25,000 surety bond that is in favor of the creditor and “consumer debtors who obtain judgment from a court of competent jurisdiction based on a violation by the consumer debt collector of the federal Fair Debt Collection Practices Act or any other New York law or federal law which is applicable to the consumer debt collector.”
The proposal also requires debt collectors to retain records concerning consumer debts “for at least five years after making the final entry regarding a consumer debt.”
Licenses will be for a one-year period and are not transferrable or assignable. Licensees also would be required to provide an annual report before April 1 providing information concerning their “business and operations” as well as other information the superintendent may require.
Private Right of Action?
The proposal does not contain any provision for a private right of action based upon a violation of its provisions. The banking superintendent would be authorized to conduct hearings and impose penalties. Regardless, claims will be brought alleging the existence of a private right of action or alleging a violation of the federal FDCPA based upon a violation of New York’s law.
No Impact on Existing Local Licensure or Regulation
The proposal does not provide a single license structure for all of New York, as many had hoped. Buffalo, Yonkers and New York City all license debt collectors and will continue to do so. As the bill does not mention any treatment for existing local regulations, locale-specific disclosures and prohibitions would also remain in place.
Debt collectors are required to make certain disclosures under both the New York DFS regulations and the New York City Department of Consumer Affairs code for certain debt collection activity in New York City. NYDFS has issued guidance for addressing when both disclosures are required.
With the additional disclosures envisioned by Gov. Cuomo’s proposal, the problems presented by multiple, conflicting and confusing consumer disclosures are bound to appear and intensify.
High Likelihood of Passage
While there are other bills in the Empire State impacting consumer financial services, the governor’s bill has a greater likelihood of passage because it is part of the 2021 budget.
Webinar on Jan. 28
Join me on Jan. 28 to hear more about the proposed legislation during a webinar hosted by Receivables Management Association International. David Reid, director of Government Affairs & Policy for RMAI, and I will discuss the proposed licensing process and RMAI’s efforts in response to the proposal. To register, click here.