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Memorandum of Support

Empire Justice Memo of Support: Create Reasonable Licensing and Bonding Requirements for Debt Collectors

A.1028 (Pheffer)/S.1439 (Squadron)

Give Consumers Subjected to Unfair Debt Collection a Legal Remedy

In the past four years, complaints about debt collection have become the largest source of consumer complaints filed with the New York State Consumer Protection Board. [1]  This rise is due in part to the increase in collection actions by third party debt buyers, who purchase old debts on the secondary market similar to the market for securitized mortgages.  Some of these debts have been discharged in bankruptcy, paid off, or passed the statute of limitations for a valid collection action.  For a consumer who is wrongfully pursued for a bad debt, New York law does not currently provide meaningful legal remedies. 

Additionally, a consumer outside of New York City has extremely limited access to legal help for a debt collection if he or she must rely on thinly stretched legal services programs.  The average consumer residing outside of New York City who is harmed by a debt collector must be able to afford to hire a private attorney to get help with a debt collection lawsuit, or simply fend for herself.  If that consumer is able to hire a private attorney and win the legal case, there is no guarantee that the consumer will ever receive payment from the judgment because so many debt collection companies are based out of state and lack the capital to meet their obligations.

Under A.1028/S.1439, New York would become the thirty-ninth state to regulate its debt collectors through state licensing and bonding.  Licensing is a critical component in creating reasonable control mechanisms over the debt collection industry at a time when consumers are facing dire economic circumstances.  The newly proposed bonding requirement will create structure in the debt collection field, where many of the worst abuses are perpetrated by companies that are loosely structured intentionally so that they may evade consumer lawsuits for collection violations.  In one case, an Empire Justice Center client was forced to settle a lawsuit for a series of egregious debt collection abuses for approximately one-tenth of the federally available statutory damages because the debt collectors had set up a series of out-of-state shell corporations to shield their assets.  Under the existing law, there was no deterrent effect to the lawsuit and no justice provided to the victim because the company was able to put its resources elsewhere, shielding them from the wronged consumer.  By requiring a bond that aligns with the size of the company, and with the statutory damages provisions in both New York State and federal laws, the debt collection company will be subject to state regulatory oversight and will be held accountable in a reasonable and calculated manner.

Additionally, both New York City and Buffalo already impose licensing and minimal bonding requirements on debt collectors operating within their boundaries.  Therefore, the creation of statewide licensing and bonding requirements is particularly important to consumers outside of these urban centers.  Under the current state of the law, with the more involved regulatory schemes in New York City and Buffalo, unscrupulous and problem debt collectors that engage in questionable tactics have an opportunity to target low and moderate income consumers outside of the large cities.  This happens specifically because the protections are fewer and there are essentially no operating requirements for debt collection companies in these locations.  Without creation of a rational and consistent statewide regulatory scheme, consumers residing outside of New York City and Buffalo are left at risk – potentially subjected to higher volume and more problematic collection tactics, in a climate where their access to specialized legal assistance is profoundly limited because of the relative scarcity of legal services programs that handle debt collection issues.

In conclusion, Empire Justice Center is extremely concerned about dubious debt buying and collection practices that are expanding at a time when many borrowers are losing value in their homes, which are often their primary asset.  As consumers continue to feel the pressures of the current economy, New Yorkers will be less and less able to afford a private attorney to look into a problem with old credit card bills or other personal debts.  For this reason, Empire Justice Center strongly supports A.1028 (Pheffer)/S.1439 (Squadron) and urges its swift passage.

End Note:
[1] Statement of Mindy A. Bockstien, Chairperson of the New York State Consumer Protection Board, Public Hearing on Consumer Protection in the Debt Collection and Debt Management Industries held by the Assembly Standing Committee on Consumer Affairs and Protection, Assembly Standing Committee on Judiciary, Assembly Standing Committee on Banks, May 14, 2009. 

This memo was prepared by:

Saima Akhtar

Empire Justice Center
119 Washington Avenue
Albany, NY  12210 

(518) 462-6831
(518) 935-2852