Sweeping Changes to Consumer Debt Collection in New York State
February 17, 2022
On November 8, 2021, New York State enacted the Consumer Credit Fairness Act (“CCFA”), which implements comprehensive changes to New York’s Civil Practice Law and Rules. The CCFA will have a substantial impact on consumer debt collection policies and procedures, including lawsuits filed by creditors or third-party debt collectors, in New York State. These changes are directed only at consumer credit transactions and will not apply to commercial credit transactions.
The key amendments in the CCFA provide for (1) a reduction in the statute of limitations to commence an action to recover a consumer debt, (2) new requirements regarding the filing and prosecution of a consumer debt collection action, (3) new notice requirements, and (4) additional affidavit requirements when a third-party debt collector seeks a default judgment in a consumer collection matter. These amendments will be introduced over time. The first of the new CCFA amendments, which go into effect on April 7, 2022, provide for the following:
- The statute of limitations for most debt collection actions arising out of a consumer credit transaction has been reduced from six years to three years.
- Failure to take action now on a consumer credit transaction may limit or prohibit your ability to collect on consumer credit transactions after April 7, 2022.
- On April 7, 2022, the new three-year statute of limitations will apply retroactively to all consumer credit transactions, not just new transactions completed after that date.
- A voluntary payment toward a debt or a “written or oral affirmation” of ownership of the debt by a consumer will no longer serve to revive or extend the statute of limitations period.
- Special attention must be given to the date of the last voluntary payment from the debtor because after April 7, 2022, the statute of limitations cannot be extended by a debtor’s affirmation or payment.
Thereafter, on May 7, 2022, the additional filing and notice requirements of the CCFA will go into effect. These amendments provide for the following:
- A copy of the debt instrument (contract or credit agreement) for revolving credit accounts upon which the consumer debt collection action is based and a copy of the charge-off statement must be attached to the complaint at the time of filing same with the appropriate court clerk.
- The complaint must disclose, among other things, the name of the original creditor, the last four digits of the debtor’s account number, and the date and amount of last payment.
- At the time of filing the proof of service of the summons and complaint, the plaintiff must submit to the court clerk an “Additional Notice of Lawsuit” notice, together with a postage-paid unsealed envelope addressed to the defendant, which the court clerk will then mail to the consumer. The additional notice must be in English and Spanish. If the notice is returned by the United State Postal Service to the court clerk as undeliverable, the court clerk will not accept an application for a default judgment for filing.
- At the time of filing of a motion for summary judgment, the plaintiff must submit to the court clerk a required “Important Notice,” together with a postage-paid unsealed envelope addressed to the defendant, which the court clerk will then mail to the consumer.
- Upon application for a default judgment, a third-party debt collector must submit supporting affidavits from the original creditor, any prior assignors or sellers of the debt, and a witness for the collector who can verify the chain of title for the debt.
- Upon application for a default judgment, the plaintiff must also include an affidavit, stating that the statute of limitations to enforce the debt has not expired.
- A consumer will no longer be deemed to have waived the defense of improper service if it is raised as a defense in the answer and the consumer fails to move to dismiss on that ground within 60 days after serving the answer. Instead, the defense of improper service is preserved and will not be time barred.
While the Consumer Credit Fairness Act was enacted to provide additional protection to consumers from abusive and exploitive debt collectors, the upcoming changes will significantly impact legitimate consumer debt collection by creditors and third-party debt collectors. By being proactive in addressing these changes, you will prepare your institution for compliance with the rapidly approaching deadlines. We are available to guide you through these changes and help implement these new consumer protections into your policies and procedures. Please contact Daniel Sarzynski or Kyle DiDone to discuss the impact that the Consumer Credit Fairness Act will have on your institution. As always, the attorneys at Rupp Baase can assist you with any questions that arise throughout this process.