FAQs: Regulation of debt collection by third-party debt collectors and debt buyers (23 NYCRR 1)
On November 14, 2014, the Superintendent of Financial Services adopted 23 NYCRR 1, a regulation to reform debt collection practices by debt collectors, including third-party debt collectors and debt buyers. In order to assist debt collectors in complying with these rules, the New York State Department of Financial Services (the “Department”) is providing answers to frequently asked questions below.
Does 23 NYCRR 1 apply to the collection of debts by original creditors?
A. No. However, the regulation does apply to third party debt collectors collecting on behalf of original creditors to the extent another exception in the rule is not applicable.
Is a debt originated by a seller of a good or service sold directly to the consumer subject to 23 NYCRR 1?
A. 23 NYCRR 1 does not apply to any debt originated out of a transaction wherein credit has been provided by a seller of goods or services directly to a consumer exclusively for the purpose of enabling the consumer to purchase consumer goods or services directly from the seller. This exception could include the extension of credit for medical services, the purchase of an automobile, or a retail installment contract if the credit is extended by the seller for specific goods or services. The debt remains exempt from 23 NYCRR 1 even if it is sold to a new creditor or given to a third-party debt collector. Note, however, that state and federal fair debt collection practices acts, which are enforceable by the Department, may still apply to these debts.
Does 23 NYCRR 1 apply to debts that have not been charged-off?
A. Some sections of 23 NYCRR 1 apply only to debts that have been charged-off, and others apply to any debt. For example, 23 NYCRR 1.2(a) requires certain initial disclosures in connection with collection of all debts, and 23 NYCRR 1.2(b) requires certain disclosures only with respect to the collection of charged-off debts.
Does 23 NYCRR 1 apply to debt servicers, including companies that service student loans, home equity loans or mortgages?
A. Much of the definition of debt collector in 23 NYCRR 1 parallels the federal Fair Debt Collection Practices Act, 15 U.S.C. 1601 et seq., and debt collectors should look to applicability of that law for guidance on who is considered a “debt collector” for purposes of the regulation. Debt servicers who collect or attempt to collect a debt that was not in default at the time it was obtained for collection are not considered debt collectors for the purposes of 23 NYCRR 1, and are not subject to the regulation. Debt servicers who are assigned defaulted debts to collect on behalf of creditors are subject to the rule unless a different exemption applies.
While debt servicers who are assigned defaulted debts may be subject to 23 NYCRR 1, certain sections of the regulation do not apply to all types of debts, particularly types of debts that servicers may collect on. For example, Sections 2(b) and 4 pertain only to the collection of charged-off debts, which typically is not germane to the collection of mortgage debt but could be germane to the collection of student loan debt.
Does 23 NYCRR 1 apply to New York based debt collectors collecting debts from persons who reside outside of New York?
A. At this time, the Department is focused on collection of debts owed or alleged to be owed by New Yorkers, which is the intended scope of the rule.
By limiting the requirement in 23 NYCRR 1.5 to payment arrangements reached “pursuant to Section 1.5 of this Part” does this section only require debt collectors to provide written confirmation of payment arrangements entered into after the enactment of the DFS rules?
Do debt collectors need to provide a full copy of the original payment agreement and copies of all payment statements in order to comply with the requirements of 23 NYCRR 1.4(c)(4)?
A. No. The rule requires “records reflecting the amount and date of any prior settlement agreement,” not original documents or each account statement.
What happens if the debt collector cannot substantiate the debt within 60 days but does so thereafter?
A. A debt collector cannot collect a debt until substantiation is provided. Once substantiation is furnished, a debt collector may begin collecting, even if substantiation is provided after the required 60-day period. While the debt collector may continue collecting, note that failure to provide the required information within 60 days of receipt of the request for substantiation is a violation of the rule separately enforceable by the Department.
Would providing consumers a monthly account statement fulfill the requirements of 23 NYCRR 1.5(b)?
A. Yes. Debt collectors must provide an accounting of the debt on “at least a quarterly basis while the consumer is making scheduled payments” on a payment plan. A monthly accounting would meet this requirement.
After a legal action has commenced, does a collection attorney need to comply with rules such as 23 NYCRR 1.5(b), which requires sending quarterly statements during scheduled payments?
A. The requirements in 23 NYCRR 1 do not apply to “any person with respect to (i) serving, filing, or conveying formal legal pleadings, discovery requests, judgments or other documents pursuant to the applicable rules of civil procedure; (ii) communicating in, or at the direction of, a court of law or in depositions or settlement conferences or other communications in connection with a pending legal action to collect a debt on behalf of a client; or (iii) collecting on or enforcing a money judgment.” If a settlement is reached with a collection attorney to resolve a pending legal action to collect a debt, 23 NYCRR 1 would not apply to the settlement.
Does 23 NYCRR 1 apply to collection of a money judgment?
A. No. While other debt collection laws and regulations may apply to the collection of money judgments, 23 NYCRR 1 does not apply when debt collectors are collecting on a money judgment.
The Department and the New York City Department of Consumer Affairs (“NYCDCA”) both require disclosures concerning the statute of limitations. However, the notices differ in some respects. If the debt collector is subject to the NYCDCA rules, are both disclosures required?
A. 23 NYCRR 1.3 requires debt collectors to provide certain information about the statute of limitations. Debt collectors can provide a single disclosure by using language required by the NYCDCA and including any additional information required in 23 NYCRR 1.3 that is not covered by the NYCDCA language. This additional information would include that: suing on a debt for which the statute of limitations has expired is a violation of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq.; and that if the consumer admits, affirms, acknowledges, or promises to pay a debt for which the statute of limitations has expired, the statute of limitations may restart.
The Department and the NYCDCA rules both specify information to be sent to a consumer within five days of the initial communication with a consumer in connection with the collection of any debt. If the debt collector is subject to the NYCDCA rules, are both disclosures required when collecting a debt?
A. The information required by the two rules differs in some respects, but does not conflict. If a debt collector is subject to both rules, the information required by the Department and the NYCDCA rules can be provided in one combined initial disclosure.
If the debt collector provides the notice required in 23 NYCRR 1.3 before accepting payment on a debt where the statute of limitations has expired, must the debt collector provide this notice in every subsequent communication or before accepting every subsequent payment?
A. A debt collector only needs to provide the disclosure required in 23 NYCRR 1.3 before accepting any payment on a debt in which the statute of limitation is expired, but not in every non-collection communication. Disclosure can be provided in the communication requesting a payment or before accepting a payment. If the statute of limitations has not restarted following acceptance of a payment, then the disclosures must be made again before accepting further payment.
If a debt collector treats a dispute, either oral or written, as a request for substantiation, must the debt collector inform the consumer of the method by which the consumer may request substantiation?
A. No. If a debt collector is treating a dispute as a request for substantiation and stops collection, the debt collector does not need to provide the consumer instructions on how to request substantiation.
If a debt collector has provided a consumer with substantiation of an alleged debt, does the debt collector need to provide information about how to request substantiation after any subsequent disputes about the debt?
A. No. Once a debt collector has provided substantiation of the debt, the debt collector does not need to provide any further information about how to request substantiation of the debt. If a new debt collector obtains the debt, the new debt collector must provide and/or offer substantiation of the debt again.
Does “clear and conspicuous” disclosure of required information mean that information must be provided on the front page of a mailing?
A. “Clear and conspicuous” is a fact-specific standard. Facts could necessitate that a disclosure be on the front page of a communication by a debt collector, but not necessarily in every case. Debt collectors should consider factors such as the prominence of the disclosure, the proximity to related information, whether the disclosure is likely to be seen, and whether the information is readable and understandable.
In lieu of providing information required in 23 NYCRR 1.4(c) to substantiate a debt, can a debt collector issue a satisfaction of the debt in order to avoid being in violation of the regulation?
A. Yes. Failure to provide the required information within 60 days of receipt of the request for substantiation is a violation of the rule enforceable by the Department. However, if a debt collector extinguishes the debt within the 60-day time period and there is no longer a debt for which to provide substantiation, the debt collector would not be in violation of the rule if substantiation were not provided within 60 days.
If a debt collector cannot provide substantiation of a debt and is not the owner of a debt, and therefore cannot forgive the debt, can the debt collector return the debt to the creditor?
A. A debt collector cannot satisfy the obligation to provide substantiation by returning the debt to the creditor. Debt collectors who do not own the debt and therefore cannot extinguish the debt can avoid potential violations by ensuring that the debt can be substantiated before commencing collections or receiving assurance from the creditor that the debt can be extinguished if substantiation is requested but cannot be provided.
Can a third-party debt collector have the original creditor provide documents responding to a request for substantiation of a debt?
A. Yes, a debt collector may have the original creditor provide the required information. However, the debt collector, who received the request is still responsible for ensuring that the information is provided within the time frame required by the rule.
If a consumer is represented by an attorney for purposes of the debt, should the debt collector send the required notices to the attorney of record or to the consumer directly?
A. A debt collector should send required notices to the attorney of record representing a consumer for the purposes of the debt.
Does the definition of debt include tort claims or utility bills?
A. 23 NYCRR 1 only applies to obligations or alleged obligations of a consumer for the payment of money or its equivalent which arise out of a transaction wherein credit has been extended to a consumer. Typically, in the collection of tort claims or utility bills, no credit has been extended, and the rule would not apply.
Is a bank an original creditor if the bank purchases a portfolio of debts from another bank?
A. If the bank acquires another bank and its debts, it remains the original creditor pursuant to the rules. A bank may not be the original creditor if it simply acquires debts. However, the rules only apply to companies “engaged in a business the principal purpose of which is the collection of any debts, or any person who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” Those circumstances may not apply to a bank.
If a specific timeline in the regulation refers to “days” and not “business days,” does this mean that the requirement refers to “calendar days”?
May a debt collector combine a disclosure required by the FDCPA and a disclosure required in 23 NYCRR 1 in one communication?
A. Yes, disclosures may be provided in the same communication as long as a disclosure required pursuant to 23 NYCRR 1 is provided within the required time frame and, taking into account other information being provided, is presented in a clear and conspicuous manner.
What information should be included in the accountings required in 23 NYCRR 1.5(b)?
A. The accounting should be useful to indicate what the consumer paid in the prior period and what is still owed. The accounting should include information typically found on an account statement such as interest and fees and how payments may be allocated between principal and other charges.
If a debt collector and consumer agree to a debt payment plan that would satisfy the debt at less than the total amount due, do statements provided to the consumer making payments pursuant to the payment plan need to include the total balance due as if there was no settlement agreement?
A. The required statement must clearly and conspicuously show the amount the consumer owes under the payment plan or settlement agreement. The debt collector is not required to include the total balance due if there was no payment plan or settlement agreement, but may include such information
Under 23 NYCCR 1.5(b), may the debt collector provide the quarterly accounting of the debt on a calendar quarter basis, regardless of when a payment or settlement arrangement is entered?
A. Yes. As long as the consumer receives the accounting no less frequently than on a quarterly basis, the timing of the quarters may begin from the date of the agreement or on a calendar quarter basis.
If a debt is charged-off after a debt collector has been collecting on the debt, does the collector need to provide the disclosure required in 23 NYCRR 1.2(b) in the next communication following charge-off?
A. No. The debt collector only needs to provide the disclosure in 23 NYCRR 1.2(b) if the debt collector’s initial communication with the consumer in connection with the collection of the debt occurs when the debt is charged-off. The applicability of 23 NYCRR 1.2(b) depends on the status of the debt when a debt collector makes its initial communication with the consumer. If the debt collector has been communicating with a consumer and the debt is charged-off after the initial communication, that debt collector does not need to provide the disclosure in 23 NYCRR 1.2(b) to continue collecting on the debt. If the charged-off debt is then assigned or sold to another collector, that collector would need to provide the disclosure required in 23 NYCRR 1.2(b).
If a debt collector has been collecting on a charged-off debt, does the collector need to provide the disclosure required in 23 NYCRR 1.2(b) in the communication following the effective date 23 NYCRR 1.2(b)?
A. No, 23 NYCRR 1.2(b) applies to a debt collector’s initial communication with the consumer in connection with the collection of the debt. If a collector already has been collecting on the charged-off debt, the communication following the effective date 23 NYCRR 1.2(b) would not be the initial communication.
In the itemized accounting required by 23 NYCRR 1.2(b)(2), if there is no interest accrued, charges or fees added, or payments made on the debt since charge-off, must a debt collector include those fields indicating “0” or if appropriate “Not Applicable”?
A. Yes, debt collectors must include all the information required in 23 NYCRR 1.2(b)(2) in a clear and conspicuous manner. The required disclosure may indicate that the value of a required field is “0” or explain that charges, fees or interest are not applicable or will not be charged, or a similar statement, if accurate.