Governor Andrew Cuomo unveiled his eighth proposal for the 2020 State of the State agenda this week. It involves protecting consumers from abusive debt collectors.
The proposal would require the thousands of debt collectors that contact New Yorkers every day to be licensed by the State Department of Financial Services. Licensing debt collectors operating in New York would ensure that debt collectors adhere to stringent standards of conduct and empower the State to examine debt collectors and pull the license of bad actors. The proposal will also codify a Federal Trade Commission rule that prohibits confessions of judgment, which give lenders – if they claim the borrower missed a payment – the unfettered power to go into court, get a judgment from a clerk and empty the consumer’s bank account.
“New York is a national leader when it comes to taking on predatory debt collectors, but current law has allowed many bad actors to go unchecked,” Governor Cuomo said. “We license barbers, home inspectors and used car dealers in New York – so it makes no sense that we don’t have the authority to license an industry that can cause families financial ruin. As this industry grows and increasingly deploys abusive and deceptive practices to prey on consumers, this proposal would give the state new tools to regulate debt collectors – stopping unscrupulous practices and strengthening our consumer protection laws.”
An estimated 32% of American adults, including 25 % of New Yorkers, have a debt that is subject to collections. Harassing, abusive, and deceptive debt collection practices has been the most frequent complaint to the FTC three of the past four years. Communities with a higher rate of lower income and minority households are disproportionally the target of debt collection efforts, with 45% of borrowers in predominantly non-white areas holding debt in collection, compared to 27% of borrowers in predominantly white areas. The judgment rate in debt collection lawsuits is 40% higher in black neighborhoods than non-black neighborhoods and debtors living in black-majority zip codes are twice as likely to have their bankruptcy cases dismissed than those living in mostly white zip codes.
Due to these statistics, debt collection has become a major industry in the United States, bringing in an estimated $11 billion in revenue in 2019 across America and too often relying on deceptive and abusive practices – so much so that in 2018 alone, federal authorities received almost a half million consumer complaints about debt collectors. This past year in Buffalo, a debt collection firm was shut down and ordered to pay $66 million in penalties restitution for engaging in predatory practices including deception, threats and harassment. Not surprisingly, the impact of debt collection efforts is particularly felt in minority communities. A recent federal study found that 44% of non-white participants reported being contacted about a debt, compared to 29% of white respondents.
Under Governor Cuomo’s leadership, New York State has consistently fought abuses in the debt collection industry, including shutting down numerous unscrupulous firms that took advantage of consumers, obtaining remediation for consumers, adopting robust debt collection regulations to stop abusive practices, and empowering consumers to ensure that they are not being targeted by fraudsters for debts that they do not owe. However, due to persistent abuses and a lack of State oversight authority, this industry continues to harbor bad actors.
Today, Governor Cuomo is proposing to amend the Financial Services Law to require licensure and comprehensive oversight of debt collectors operating in New York. The Governor’s proposal would allow the State Department of Financial Services to bring its vast experience regulating financial services companies and protecting consumers to the debt collection industry and create a licensure program that prevents problematic practices and consumer abuse.
Currently, debt collectors in New York State are regulated by the Department of Financial Services. However, since the Department does not license these entities, debt collectors are not subject to the same oversight as most other financial institutions. Under current law, the Department has limited authority to compel debt collectors to provide data that regulators typically collect to ensure compliance with consumer laws and regulations, resolve or even acknowledge consumer complaints, or appear before administrative hearings.
Under the Governor’s proposal, DFS would license these entities, and be empowered to examine and investigate, including requiring the submission of information or sending investigators to debt collector’s offices at any time to review their books and records. This new oversight would also allow the Department to bring punitive administrative actions against unscrupulous debt collectors that could result in significant fines or the loss of their license to do business in the State. The proposal will also combat schemes intended to defraud people into paying debts they do not owe. New York will create a look up tool for the public to check a debt collector’s credentials to ensure that a collector contacting them is a licensed company and not a fraudster attempting to pressure the consumer into paying a debt they do not owe.
Additionally, Governor Cuomo will propose legislation stopping the abusive use of confessions of judgment. A confession of judgment gives the lenders—if they claim the borrower missed a payment—the unfettered power to go into court, get a judgment from a clerk, and empty the consumer’s bank account. There is no notice to the borrower, no hearing, and no proof required. Recent reports found that “cash-advance companies have secured more than 25,000 judgments in New York since 2012,” exploiting New Yorkers. Under this proposal, New York will codify a Federal Trade Commission rule that prohibits confessions of judgment in consumer loans.
In 2019, Governor Cuomo signed legislation to protect the approximately 2.8 million student loan borrowers in New York State by requiring companies that service and collect on student loans held by New Yorkers to obtain a state license and be subject to oversight and regulation by the Department of Financial Services.
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