While it is a necessary business for many, the debt collection industry has been criticized for instances of fraud and intimidation on the part of certain disingenuous collection agencies. The new protocols set out by the New York Department of Financial Services aim to “protect borrowers and help crack down on illegitimate debt collection practices,” according to a statement by the Governor. “Here in New York, we will not tolerate debt collectors who wrongfully take advantage of consumers.”
Many of the 20,000+ complaints registered with the state in 2014 pertained specifically to the debt-buying side of the industry. Companies such as hospitals and vendors occasionally decide to sell off portions of their debt portfolio when they’ve given up hope of ever collecting on certain outstanding balances. When interested firms buy these portfolios—often at a price well below the value of the actual amounts owed—and pursue the debtors on their own, there are sometimes gaps in recordkeeping that make it difficult to ensure whether the correct borrower is being pursued, or even whether the bill might have already been paid. When faced with intimidating collection notices, it is natural for some borrowers to pay, especially when it appears to be coming from a familiar-sounding institution. Given that these cases frequently involve old debts, this is particularly troublesome for elderly individuals who may be more vulnerable to harassment, or even scams. Furthermore, debtors do not typically have legal representation, nor do they know their rights when it comes to cases of long-expired and abandoned debt.
Under the new regulations, debt collectors will have a legal obligation to be more transparent in their communication with borrowers, and include more detailed information about the source and expiry of the debts being collected. If a specific debt is past its statute of limitations, for example, this must be clearly stated to the debtor, who then has a much better chance of having that case dismissed should the collector attempt to sue. Requirements regarding written confirmation at all stages of a collection attempt will also be enforced.
Debt collection industry groups are reviewing and preparing for compliance with these new protocols, but are encouraging the NYDFS to defer implementation of its new rules until the CFPB rolls out its own updated regulations. The latter bureau has been working on restructuring its standards since November 2013; if its officials decide to incorporate New York’s stricter rules, the ripple effect could encourage other states to make similar changes, thereby bringing additional reform to the debt collection industry across the nation.