On June 27, the City of New York’s new rules aimed at language access in debt collection become effective. I am often asked whether they apply to creditors as well. It appears that particular provisions of the new rules do cover creditors collecting their own debt.
As outside counsel to Receivables Management Association International (RMAI), I participated in a call with staff from New York City’s Department of Consumer and Worker Protection (formerly known as the Department of Consumer Affairs) on June 17, along with other financial services industry representatives, to discuss the new rules. The topic of creditor application was briefly discussed. Department staff appeared to suggest the new rules were not applicable to creditors.
But a closer look at the new rules quickly reveals this is not how they are written. The rules add new provisions to two separate and distinct sections of the existing rules that have very different requirements and impact different classes of entities in the debt collection process. By structuring the new rules in this way, debt collectors employed by creditors are covered by three particular provisions of the new rules.
Rules Covering a “Debt Collection Agency” Should Not Impact Creditors Collecting Originated or Purchased Performing Loans
Two new rules are contained in Chapter 2, “Licenses,” of the City’s rules. Amendments to 2-193(b) and 2-193(c) require a “debt collection agency” to maintain certain records concerning the “language preference” of consumers it collects from and instances where its employees attempted to collect a debt in a language other than English. As defined in the City of New York’s administrative code, a “debt collection agency” is a person “engaged in business the principal purpose of which is to regularly collect or attempt to collect debts owed or due or asserted to be owed or due to another . . .” This includes “a buyer of delinquent debt who seeks to collect such debt either directly or through the services of another . . .”
Although this definition captures creditors who purchase delinquent debt, it does not include a purchaser of a performing loan or an originating creditor. So, creditors who are not buyers of delinquent debt or those collecting their originated loans are excluded.
Three New Rules Covering “Debt Collectors” Pose a Problem for Creditors
But there are a few other rules that apply only to “debt collectors.” These new rules appear in Chapter 5, “Unfair Trade Practices,” in the subchapter “Consumer Protection Law.” New York City rules define a “debt collector” as “an individual who, as part of his or her job, regularly collects or seeks to collect a debt owed or due or alleged to be owed or due.” A person employed by a creditor is not identified among the various exceptions.
Within this subchapter, only one rule, 5-77(f), makes a distinction between debt collectors employed by creditors and third-party debt collectors. Under 5-77(f)(1), a particular disclosure is required to be made to consumers “upon acceleration” or a demand for full payment. It reads, “. . .the following validation procedures shall be followed by debt collectors who are creditors or who are employed by creditors . . .” But there are plenty of exclusions here that excuse many creditors from having to provide this “validation” notice. The new rules do not add any provisions to this subsection, so no matter what type of loan a creditor is collecting, nothing has changed for creditors under 5-77(f)(1).
But the new rules also amend sections 5-77(d), (e) and (h). None of these sections carve out “debt collectors who are creditors or employed by creditors” as seen in 5-77(f)(1).
Subsection (d) makes it a violation to provide a “false, inaccurate or partial translation of any communication” if providing “translation services.” It also prohibits the “false representation or omission of a consumer’s language preference when returning, selling or referring for litigation any consumer account, where the debt collector is aware of such preference.”
Subsection (e) prohibits a debt collector from attempting to collect a debt “without first requesting and recording” the consumer’s “language preference.”
Subsection (h) requires a “debt collector” to publish, “clearly and conspicuously” on any public-facing website it maintains, the same new language preference validation disclosures found in the new 5-77(f)(2). The new disclosures under 5-77(f)(2) are limited to a third-party debt collector’s New York City validation notice. As pointed out earlier, most creditors are excepted from giving any validation notice under 5-77(f)(1) and if they are required to do so, the new rules do not require any language preference disclosures under 5-77(f)(1). But subsection (h) would require the new language preference disclosures that are only applicable to third-party debt collections under 5-77(f)(2) to appear on any debt collector’s public-facing website, without exception.
The Importance of Public Comment to Rulemaking
The rules were announced in early March, just as the COVID-19 pandemic was taking hold, and it is no surprise that no written comments were received. Worse, no testimony was made at an April 2020 public hearing on the proposed rules. Rather than extend the comment period, the City went ahead and adopted the rules on May 28, with an effective date of June 27.
If the application of these rules to creditors collecting their own debt was inadvertent, chalk that up to the lack of any public comment.
Attempts were made to suspend the rules’ effective date and reopen comments; the City has rejected one request and industry trade associations are awaiting a response to a follow-up request. These requests, as well as the new rules, are discussed in two earlier articles: Seven Things to Know About New York City’s New Debt Collection Rules and Joint Industry Letter to NYCDCA Seeks Extension, Poses 25 FAQs.
On-Demand Webinar Now Available
I discuss the new rules during a webinar now available on demand. With just a few days to go before the rules become effective, our panel explores implementation of the disclosure and reporting requirements and includes discussion of the Q&A we had with the City on June 17. Click here to register. One hour of RMAI education credit is available for this presentation.