Rule 1.2 requires the debt collector, within five days of the initial communication concerning the collection of a debt, to disclose that certain types of income are exempt from collection if a money judgment is entered against the consumer. The industry has raised concerns that including this exempt income language on communications to consumers whose debts are barred by the statute of limitations could expose them to liability under the Fair Debt Collection Practices Act (FDCPA).
Specifically, consumer advocates could argue such language constitutes a threat to file a lawsuit on out-of-statute debt, which is an FDCPA violation. This language is required for out-of-statute debt communications. Accordingly, it is prudent for debt collectors to include a disclaimer that makes clear that this language should not be construed as a threat to sue, but rather is required by the State.
The requirement in Rule 1.2 prohibits a debt collector from engaging in abusive, deceptive, and unfair debt collection efforts and the exempt income language be clear and conspicuous. This language should appear on the first page of the notice, and that placing it on the back with an instruction on the first page urging the consumer to turn the page is insufficient.
Rule 1.4, which governs the debt collector’s obligation to provide written substantiation of a charged-off debt within 60 days of receiving a request for one, prompted additional concerns from the audience. DFS expects debt collectors to issue a satisfaction of the debt to the consumer if written substantiation cannot be provided within the 60-day period. Debt collectors that cannot substantiate the debt would not be in compliance with Rule 1.4 by merely closing the account, sending the file back to the creditor, and notifying the consumer of the transfer. The DFS clearly expects debt collectors to obtain the required records to substantiate before attempting to collect on charged-off debt. It is critical that debt collectors have the appropriate policies and procedures to ensure they are confirming receipt of the records needed to substantiate the charged-off debt immediately upon transfer of the debt.
Rule 1.4 also requires the debt collector to retain evidence of the consumer’s request for substantiation until the debt is discharged, sold, or transferred. In the event of a telephonic request for substantiation, the debt collector does not have to keep an actual recording of the call, so long as the file contains a notation reflecting that the consumer called to request substantiation of the debt.
Rule 1.5 requires the debt collector, within five business days of agreeing to a debt payment schedule or other debt settlement agreement, to provide the consumer with a written copy of the schedule and a notice that certain income streams are exempt from collection. This provision not only covers settlements that satisfy the debt, but also includes any payment schedules that partially pay the debt.
It is a violation of the FDCPA to violate any of the new New York State Department of Financial Services regulations when collecting a debt in New York.