Consumer Credit Fairness Act

New York Legal Assistance Group (NYLAG) strongly supports A.9053/S.7349, the Consumer Credit Fairness Act, because it would help curb abusive debt collection lawsuits. This legislation will greatly reduce the number of unfair and abusive debt collection lawsuits, which are particularly harmful to elderly, disabled, and low and moderate income New Yorkers. Click here to read NYLAG’s full memo of support.

From NYLAG’s Memo:

Abusive debt collection lawsuits harm hundreds of thousands of New Yorkers every year. Most of these lawsuits are brought by debt buyers, companies that buy portfolios of old, defaulted debts from original creditors for a few pennies on the dollar. These debt buyers—most of which are based outside New York—obtain little to no documentation about the debts on which they sue; routinely fail to serve people with notice that they have been sued; and often fail to provide basic information about a debt when they commence a lawsuit, such as the name of the original creditor, the last four digits of the account number, and the date of the last payment.

Moreover, many of the debts are in fact too old to be sued on, have already been paid or discharged in bankruptcy, or result from identity theft or mistaken identity. Survivors of domestic violence are often saddled with debts incurred by their abusers after they opened credit cards in the survivors’ names. Even in cases where a person may owe some money, debt buyers often sue for grossly inflated amounts, padding the debts with unauthorized fees and interest. Most defendants do not even receive notice that they have been sued. Without notice, they do not appear in court, and debt buyers easily obtain “default” judgments, without having to produce legitimate proof of the debts.

The consequences of these default judgments can be devastating. Debt buyers enforce judgments by freezing people’s bank accounts and garnishing their wages. Low and moderate income New Yorkers then cannot pay for their basic needs, such as housing, utilities, food or medication. These judgments appear on people’s credit reports, making it difficult, if not impossible, for them to find housing, obtain employment, take out a loan, or accumulate any savings. The consequences of a judgment are especially abusive when a person has had no prior notice of the lawsuit. For survivors of domestic violence, these judgments become impenetrable barriers in their attempts to become financially independent from their abusers by securing their own employment, credit, and housing.

Because debt buyers have little to no documentation about the debts on which they sue, they routinely engage in rampant robo-signing of fraudulent affidavits, in which they attest to having information that they do not have. In 2013, the Federal Trade Commission released a report on nine of the country’s largest debt buyers, all of which file debt collection lawsuits in New York. The FTC found that these debt buyers received very little documentation about the debts they purchase, and rarely received any information concerning whether a person had disputed the debt.

A.9053/S.7349 would prevent debt buyers from continuing to exploit gaps in our state’s Civil Practice Law and Rules. For instance, by requiring debt collectors to provide more information about a debt when commencing a lawsuit, it would help New Yorkers better identify the debt or account on which they are being sued. This is particularly helpful for survivors of domestic violence, who are often sued on debts that they did not voluntarily or knowingly incur. Other states, including Delaware, Illinois, Maryland, and North Carolina, already have a similar requirement.

By reducing the statute of limitations for consumer credit transactions from six to three years, the bill also encourages creditors to file claims in a timely manner and protects people from the excessive accumulation of interest charges and late fees. In 2010, New York’s highest court confirmed that a three-year statute of limitations already applies to many of the debt collection lawsuits filed in our state’s courts, ruling that New York’s six-year statute of limitations does not apply if the original creditor’s home state has a shorter statute of limitations. For example, a three-year statute of limitations already applies to all lawsuits brought on Chase, Bank of America, or Discover credit card accounts.

A three-year statute of limitations would bring greater fairness and uniformity to the court process. Every year, thousands of New Yorkers are sued on stale claims. Unfortunately, because most people sued have no access to legal counsel, they are unaware that they can raise a statute of limitations defense. A.9053/S.7349 would promote fairness by providing for a consistent statute of limitations in debt collection lawsuits, and would conserve judicial resources by sparing the courts from having to engage in a fact-intensive inquiry in each case to determine the original creditor’s home state.

The bill would also provide enhanced protections to people who never received notice that they were being sued. Current law grants defendants only a limited 60-day window to raise the claim that they were not properly served with notice of a lawsuit. Defendants—98% of whom are not represented by counsel—often are unaware of this time limit, and inadvertently waive this defense. A.9053/S.7349 would grant defendants additional time to raise a claim of improper service.

In April, New York’s Chief Judge Jonathan Lippman announced strong proposed court rules to address longstanding abuse of the courts by the debt collection industry. These rules would help prevent debt collectors, especially debt buyers, from continuing to violate the due process rights of New Yorkers, by ensuring that more people receive notice that they have been sued and that debt buyers cannot obtain default judgments without proof of their claims. A.9053/S.7349 would codify key parts of these rules, but also implement other much-needed changes that the courts cannot address by rule, such as the requirement that debt collectors provide basic information about a debt when commencing a lawsuit. Chief Judge Lippman has publicly endorsed the Consumer Credit Fairness Act as a necessary complement to the proposed court rules.

NYLAG strongly believes this legislation should be passed to greatly reduce the number of unfair and abusive debt collection lawsuits, which are particularly harmful to elderly, disabled, and low and moderate income New Yorkers.