The following maps show that throughout New York State, in every region examined, debt collection default judgments are disproportionately concentrated in neighborhoods of color. New Yorkers who live in neighborhoods of color are therefore more likely than people in predominantly white neighborhoods to have their wages garnished and bank accounts frozen, and their property encumbered by liens. The default judgments appear on people’s credit reports, blocking them from fair access to employment and housing.
In 4 out of 10 cases, the affidavit in support of a default judgment was completed before the defendant’s time to answer had expired, in expectation of a default that had not yet occurred.
Fundamental change is urgently needed to bring about a financial system based on principles of economic equity, fairness, and inclusion. Through their destructive practices, the credit and debt buying industries perpetuate poverty and inequality. The problems are structural, and must be addressed systemically. In the short term, however, New York can significantly curb abusive debt collection lawsuits by closing gaps in our state laws and rules. At a minimum:
NYC Debt Collection Laws are Now the Most Stringent in the Nation.
The changes to the laws for debt collection in New York City in July 2009 were sweeping in their breadth:
All Debt Buyers Must Now be Licensed
1. Both active and passive debt buyers must now obtain a license to collect in New York City. This means that if a company purchases debts owed by New York City consumers and collects on the debts, either directly or through the services of another company, the purchaser must obtain a license.
If a Debtor Call is not Connected to a “Qualified Person”
Within 60 Seconds, There Will Be a Fine
2. Every permitted communication (letters, telephone calls, voicemail messages) with a Debtor must include all of the following information:
• The agency name, the original creditor, the name of a person and call-back number to a phone that is answered by a natural person.
The rules also require that calls to a debt collector must be transferred within 60 seconds to a person qualified to address consumer inquiries about the communications the collector had on the account.
Checklist for Settlement Agreement
3. Settlement agreements and payment arrangements with New York City residents now must including the following:
• The original creditor, the collection agency, the name and address of the consumer and the address to which the payments are to be mailed.
• The employee (or supervisor of the employee) who set up the agreement.
• The date the agreement was made, the amount of the payment(s) and due date of each payment;
• Any other terms and the conditions for satisfying the outstanding balance.
Verification Requirements for BOTH Verbal and Written Disputes
4. A debtor dispute, regardless of whether written or verbal, at ANY time in the collection process (and not just during the 30 day validation period) requires the collection agency to cease all collection efforts until the following documents are provided to the debtor:
For collection on purchased accounts, these requirements may be satisfied by providing the chain of title for the account, the contract signed by the consumer and all statements on the account from a zero balance through charge-off.
• A copy of the debt document issued by the originating creditor or and original written confirmation evidencing the transaction resulting in the indebtedness to the originating creditor.
• A copy of the final statement of account issued by the originating creditor and a document itemizing: (1) the total amount remaining due on the total principal balance of the indebtedness to the originating creditor and (2) each additional charge or fee claimed or alleged to be due that separately (i) lists the total for each charge or fee and the date that each charge or fee was incurred; and (ii) identifies and describes the basis of the consumer’s obligation to pay it.
Mandated Time-Barred Debt Disclosure
The New York City rules require that EVERY permitted communication with a consumer (whether verbal or written) on a time-barred debt must include the following disclosure:
WE ARE REQUIRED BY LAW TO GIVE YOU THE FOLLOWING INFORMATION ABOUT THIS DEBT. The legal time limit (statute of limitations) for suing you to collect this debt has expired. However, if somebody sues you anyway to try and make you pay this debt, court rules REQUIRE YOU to tell the court that the statute of limitations has expired to prevent the creditor from obtaining a judgment. Even though the statute of limitations has expired, you may CHOOSE to make payments. However, BE AWARE: If you make a payment, the creditor’s right to sue you to make you pay the entire debt may START AGAIN.
Given the length and content of this new disclosure, and the requirement that it be provided in both verbal and written communications, most in the debt industry are opting to avoid collecting on time-barred debt in New York City.
All Members of the Debt Industry are Urged to Examine Their NYC Compliance
The aggressive enforcement posture of the NYCDCA coupled with the most stringent collection compliance rules in the nation require that every company collecting in New York City examine its compliance immediately.
1Previous studies include: Debt Deception: How Debt Buyers Abuse the Legal System to Prey on Lower-Income New Yorkers, MFY Legal Services, NEDAP [now New Economy Project], The Legal Aid Society, and Urban Justice Center (May 2010)(“Debt Deception”); Where’s The Proof? When Debt Buyers Are Asked to Substantiate Their Claims in Collection Lawsuits, They Don’t: A Study of Cases Filed Against New York City Employees and Retirees, District Council 37 Municipal Employees Legal Services (November 2009); Justice Disserved: A Preliminary Analysis of the Exceptionally Low Appearance Rate by Defendants in Lawsuits, MFY Legal Services (June 2008); and Debt Weight: The Consumer Credit Crisis in New York City and Its Impact on the Working Poor, Urban Justice Center (October 2007) (“Debt Weight”).
2Because data are available only for municipal courts that have adopted the UCMS case management system, our research significantly understates the impact of debt collection lawsuits on communities outside New York City, particularly suburban and rural communities that are not part of the municipal court system. 3Debt Deception; Debt Weight. 4Under New York law, to obtain a default judgment a debt buyer must submit an affidavit from a party to the action, i.e., the debt buyer itself. NY CPLR § 3215(f). In two out of five judgments reviewed, however, the affidavits in support of the judgment came only from people who were not employed by the debt buyer. In more than half of cases, the affidavits were so vague that it was impossible to tell for whom the affiant worked. Overall, in 95% of judgments reviewed, there was no identifiable affidavit from a party to the action, in violation of New York law. Furthermore, in seven out of ten cases, key facts in the affidavits were alleged only “on information and belief,” with the result that the courts improperly issued judgments based solely on hearsay. 5In New York City, 38% of cases resulted in default judgments, and 18% of people sued appeared in court. Outside of New York City, 52% of cases resulted in default judgments, and only 7% of people sued appeared in court. 6In 2008, in response to widespread evidence of improper service in debt collection cases, the New York City Civil Court adopted an additional notice requirement. Court clerks mail the additional notice to the person sued at the address listed on the summons. Many people who do not receive the summons and complaint appear in response to the additional notice, and court clerks do not enter default judgments in cases in which the additional notice is returned as undeliverable. No similar requirement exists outside of New York City, though improper service is a statewide problem.
§ Section 2-190: Documentation of the Debt to be Provided by Debt Collection Agency.
Codified Rules: Closed to Comments
(a) The written documentation identifying the creditor who originated the debt, which a debt collection agency is required to provide pursuant to §20-493.2 (a) of the Administrative Code, shall be a copy of the debt document issued by the originating creditor or an original written confirmation evidencing the transaction resulting in the indebtedness to the originating creditor. Computer documents or electronic evidence created or generated after default on the indebtedness shall not qualify as such confirmation.
(b) The written documentation itemizing the principal balance of the debt that remains or is claimed or alleged to remain due and all other charges that are due or claimed or alleged to be due, which a debt collection agency is required to furnish pursuant to §20-493.2 (a) of the Administrative Code, shall consist of a copy of the final statement of account issued by the originating creditor and a document itemizing: (1) the total amount remaining due on the total principal balance of the indebtedness to the originating creditor and (2) each additional charge or fee claimed or alleged to be due that separately (i) lists the total for each charge or fee and the date that each charge or fee was incurred; and (ii) identifies and describes the basis of the consumer's obligation to pay it.
§ Section 2-193: Records to be Maintained by Debt Collection Agency.
Codified Rules: Closed to Comments
(a) Unless otherwise prohibited by federal, state or local law, a debt collection agency shall maintain a separate file for each debt that the debt collection agency attempts to collect from each consumer, in a manner that is searchable or retrievable by the name, address and zip code of the consumer and the creditor who originated the debt the agency is seeking to collect. The debt collection agency shall maintain in each file the following records to document its collection activities with respect to each consumer:
(1) A copy of all communications with the consumer.
(2) A record of each payment received from the consumer that states the date of receipt, the method of payment and the debt to which the payment was applied.
(3) A copy of the debt payment schedule and/or settlement agreement reached with the consumer to pay the debt.
(4) With regard to any debt that the debt collection agency has purchased, a record of the name and address of the entity from which the debt collection agency purchased the debt, the date of the purchase and the amount of the debt at the time of such purchase.
(b) A debt collection agency shall maintain the following records to document its collection activities with respect to all consumers from whom it seeks to collect a debt:
(1) A monthly log of all calls made to consumers, listing the date, time and duration of each call, the number called and the name of the person reached during the call.
(2) Recordings of complete conversations with all consumers or with a randomly selected sample of at least 5% of all calls made or received by the debt collection agency and a copy of contemporaneous notes of all conversations with consumers. The method used for randomly selecting the recorded calls shall be included in the file where the tape recordings are maintained.
(3) A record of all cases filed in court to collect a debt. Such record shall include, for each case filed, the name of the consumer, the identity of the originating creditor, the amount claimed to be due, the civil court index number and the court and county where the case is filed, the date the case was filed, the name of the process server who served process on the consumer, the date, location and method of service of process, the affidavit of service that was filed and the disposition for each case filed. Such record shall be filed in a manner that is searchable or retrievable by the name, address and zip code of the consumer and the creditors who originated the debts that the debt collection agency is seeking to collect.
(4) The original copy of each contract with a process server for the service of process, and copies of all documents involving traverse hearings relating to cases filed by or on behalf of the debt collection agency. Such records should be filed in a manner that is searchable by the name of the process server.
(c) A debt collection agency shall maintain the following records relating to its operations and practices:
(1) A copy of all actions, proceedings or investigations by government agencies that resulted in the revocation or suspension of a license, the imposition of fines or restitution, a voluntary settlement, a court order, a criminal guilty plea or a conviction.
(2) A copy of all policies, training manuals and guides for employees or agents that direct, describe, suggest or promote how a collector is to interact with consumers in the course of seeking to collect a debt.
(d) The records required to be maintained pursuant to this section shall be retained for six years from the date the record was created by the debt collection agency, a document was obtained or received by the debt collection agency, a document was filed in a court action by the debt collection agency, or a training manual or employee guide was superseded, except that recordings of conversations with consumers shall be retained for one year after the date of the last conversation recorded on each completed recording tape.
Does checking my own credit report affect my credit score?
Top take aways
• There are two kinds of credit checks: Soft & Hard
• A "Soft" inquiry is when you check your own credit score for reasons other than extending your credit
• A "Hard" inquiry is made when you apply for new credit and a lender requests a copy of your credit report
• Inquiries can stay on your credit report for about two years
You can get one free from www.annualcreditreport.com
Building credit and keeping yours healthy
Top take aways
• Creating a budget and watching our video “How to set a budget and stick to it.” may help you stay out of debt.
• Setting up automatic payments is a simple, easy way to help you stay current and keep from missing payments.
• Keep your debt-to-credit ratio as low as you can.
• Before you open a new credit account of any kind, consider how it could impact your credit.
Check your credit report annually. Visit AnnualCreditReport.com to get free copies of your Experian, TransUnion and Equifax reports.
Steps to help you get out of debt
Top take aways
• Getting out of debt will take time and dedication.
• Change your spending habits and stop adding to your debt now.
• Start by creating a budget to track how much you have coming in and where you’re spending it. You can find budgeting worksheets online to help you at places like Mint.com and Bank of America.
• Pay at least the minimum on all of your bills each month, but pay more whenever you can.
• Make a list of your unsecured debts in order from highest to lowest interest rates — and pay as much over the minimum as you can afford each month on the ones with the highest interest rates first.
If you still find yourself with debt you can’t handle, contact the National Foundation for Credit Counseling (NFCC) at 800-388-2227. They can connect you to the NFCC Member Agency that’s closest to you.
How to remove a judgment from your credit report
◦ 1 Obtain a current copy of your credit report. The Fair and Accurate Credit Transactions Act (FACTA) gives you the right to receive a free annual credit report from each of the three credit bureaus: Experian, Equifax and TransUnion. You can order the report at the bureau's website or at www.annualcreditreport.com, the website Congress set up to allow consumers to obtain their report. Additionally, you can order your report by mail or over the phone.
◦ 2 Look through your credit report and check for errors. Information reported to the credit bureau can change on a daily basis. Items are also deleted on a regular basis. You want to have the most accurate picture of your report before you file a dispute. Look at the "public records" section to see whether the judgment in question is still listed on the report.
◦ 3 Visit the bureau's website and file an online dispute. You will need the credit report number from the new report to get started. From the options, select the reason for the dispute. Indicate that the paid judgment is beyond the seven-year statute of limitations. If you file by mail, clearly state the reason for your dispute and include any supporting documents. When disputing by phone, tell the rep what item you would like to dispute and the reason.
◦ 4 Print the credit report and dispute for your records. Keep these items for reference and to prove that you filed the dispute. FACTA allows you to receive one free report a year, but if you order it online and fail to print it out, the bureau may charge you a fee to view that report again.
◦ 5 Give the bureau up to 30 days to remove the item, which is how long it has under the FCRA to investigate and resolve the dispute. Once the investigation is complete, the bureau will send an email to you with the results. Disputes submitted by phone or mail will have those results sent via mail. Along with your results, the bureaus will provide you an updated copy of your credit report that shows the item has been removed.
What do I do if I find a mistake on my credit report?
Top take aways
• If you find an error, send a letter to the credit agency or fill out the online dispute form explaining the error and requesting an investigation
• If the credit bureau can’t confirm the disputed entry within 30 days, they’re required to delete it
• If your dispute is successful you may want to ask anyone who requested to see your report in the last six months gets an updated – and corrected copy.
If an error remains on your report, you can add a remark explaining your side of the story