New State Consumer Debt Protection Laws Go into Effect in April, Reduces Statute of Limitations on Debt Collectors From Six Years to Three
New York Attorney General Letitia James sent letters to the largest credit card companies and major debt collectors operating in New York, warning them of new state regulations that prevent them from suing consumers for old debts. The Consumer Credit Fairness Act of 2021 — which was signed into law last November — will go into effect next month and reduces the statute of limitations for consumer debt collection from six years to three years. The new state regulations come on the heels of similar nationwide regulations from the Consumer Financial Protection Bureau that came into effect late last year. Attorney General James’ letter makes it clear that her office stands ready to enforce these regulations to protect vulnerable New Yorkers.
“For too long, debt collectors used unfair and abusive tactics to improperly collect debts,” said Attorney General James. “Abusive debt collection practices of the past hurt low- and moderate-income New Yorkers the most and buried them deeper into financial struggles. These new regulations will give us stronger tools to protect the most vulnerable New Yorkers from predatory debt collectors. My office has reached out to all the major debt collectors in the state and the largest credit card companies to ensure that they comply with the new laws starting on day one without excuses. I urge any New Yorker who feels that they have been a victim of improper debt collection to contact my office. Consumers have rights and my office is committed to protecting them.”
The Consumer Credit Fairness Act of 2021 strengthens consumer protections by requiring debt collectors to be more transparent and honest when communicating with consumers. In her letter to the industry, Attorney General James warned debt collectors of their duties under federal and state law:
- Limit Communications With Consumers. Debt collectors have for years had a duty under state and federal law to avoid harassing communications; the new regulations now add bright line rules to that general obligation:
- Debt collectors may not call consumers more than seven times in any seven-day period;
- After making contact with a consumer by phone, debt collectors must wait seven days before calling again;
- Debt collectors cannot call you between 9pm and 8am, local time;
- Debt collectors cannot contact consumers by any or all means of communication (email, text, phone, and so on), or at a consumer’s workplace, if a consumer asks them not to;
- Debt collectors generally cannot contact consumers via work email address, public social media postings, or through third parties (though they may under some circumstances contact third parties to obtain information about a consumer’s location).
- Tell Consumers the Facts — Debt collectors must provide consumers with key information about their debt within five days of their first communication. These “validation notices” must include:
- The name of company or person the consumer originally owed the debt to;
- The date and amount of the original debt; and
- An itemization of fees, interest, payments, and credits that have been added to or deducted from the original debt.
- Take Debt Disputes Seriously — Consumers have a right to dispute a debt, and debt collectors must provide information on how to dispute the debt in the validation notice. Once a consumer disputes a debt, the collector must stop all attempts to collect from that consumer until the collector provides information supporting their claim to the debt.
- Give Consumers Full Information About Any Debt Lawsuit a Debt Collector Files. Debt collectors who file a lawsuit against a consumer must include in the very first filing made in that lawsuit detailed information about the debt, including the name of the original person or company the consumer owed the debt to, the last four digits of the consumer’s account number, the date of the last payment, and itemization of the amount sought. They must also attach the original contract creating the debt (in most cases).
- Avoid Suing or Threatening to Sue Consumers for Time-Barred Debts. Under longstanding New York regulation, debt collectors are required to have reasonable procedures in place to determine whether debts they hold are time-barred, and to notify consumers, before accepting a payment from them, if the debt they are collecting is time-barred. CFPB regulations clarify that suing or threatening to sue a consumer for a time-barred debt — even an implied threat to sue — is an automatic violation of federal law.
- Be Aware of New, Shorter Statute of Limitations Applicable to Consumer Debts. From April 7, 2022, creditors cannot sue or make a threat to sue consumers (implicitly or explicitly) on debts that are older than three years, down from six years in most cases. Moreover, any payment a consumer makes after that three-year period cannot be used to revive the time-barred debt.
- Consumers are cautioned that until April 7, 2022, if they make a payment on a debt that is too old for a lawsuit, the payment may renew the creditor’s ability to sue them for the full amount of the old debt.
In December, Attorney General James issued a consumer alert to notify consumers of the new federal consumer debt regulations and to inform them of their rights. The federal regulations limit how and when debt collectors are allowed to contact consumers. These rules also require debt collectors to give consumers detailed information about the origin and history of the debt they seek to collect.
“No consumer should be sued over a debt they do not legally owe or which a creditor has no right to collect,” said State Senator Kevin Thomas. “As chair of the Consumer Protection Committee, I fought hard to pass the Consumer Credit Fairness Act into law so that New Yorkers can be protected from outrageous and deceptive debt collection practices. I thank New York Attorney General Letitia James for her commitment to defending the rights of New Yorkers, and holding companies that violate the law accountable.”
“I thank Attorney General James for her longstanding leadership in protecting consumers, and in particular, those who are wrongly targeted by debt collectors,” said Assemblymember Helene E. Weinstein. “I am proud to work with her on legislation which I sponsored, the Consumer Credit Fairness Act, which will soon go into effect and protect vulnerable New Yorkers from wrongful debt collection practices.”
The Office of the Attorney General (OAG) has brought dozens of enforcement actions and obtained numerous settlements against debt collectors that engaged in improper debt collection tactics. In 2019, Attorney General James partnered with the Federal Trade Commission to obtain court orders halting a scheme to distribute and collect on millions of dollars in “phantom debts” — fake debts that consumers did not owe. Earlier, OAG reached agreements with four of the nation’s major debt buyers, which regularly pursued untimely lawsuits against New York consumers, often obtaining default judgments when the consumers failed to respond to the lawsuits. As a result of OAG’s actions, many companies and individuals have been permanently banned from engaging in debt collection in New York.
Attorney General James urges New Yorkers to know their rights and to report debt collectors to her office if they fail to follow the law or if they engage in conduct that is deceptive, harassing, or abusive. Consumers who are having these experiences with debt collectors are urged to file complaints with OAG online or to call OAG’s consumer helpline at 1-800-771-7755.