NYS Takes Bold Step To Regulate Collection Lawsuits

On September 16, 2014, the New York State Unified Court System announced new rules to stop debt collection agencies from using underhanded tactics to win judgments against poor or elderly credit card holders.

In the recent past, debt collection agencies frequently score court judgments for the wrong amount of money or even from the wrong person by using incomplete proof or by pressing cases where the statute of limitations has expired. The collection agencies also frequently fail to provide proper notice that a lawsuit was filed – a tactic known as “sewer service.”

“While creditors have every right to collect what is legally owed to them, the Judiciary has an obligation to prevent inequitable debt collection practices in the courts,” said Chief Judge Jonathan Lippman, who called the new rules the biggest push for fairer debt collection in any court system in the nation.

The new rules, which go into effect October 1, 2014, will require creditors to prove a debt is valid, disclose the debt’s chain of ownership, and show that the statute of limitations has not elapsed.

Establishing the chain of ownership is important because third-party debt buyers purchase huge portfolios of delinquent debtors and then launch legal proceeding without critical documents missing.

Third-party debt buyers will now have to file affidavits from the original creditor and all other holders of the account in the chain of title.

Further, in a move aimed at addressing “sewer service,” creditors must also give the court notice of any new lawsuits so the notice can be mailed to the debtor. If the notice is returned as undeliverable, no default judgment can be awarded.

“The adoption by the Unified Court System of these rigorous new requirements will undoubtedly avert unwarranted default judgments in consumer debt cases and serve to protect the rights of all New Yorkers, including some of our most vulnerable citizens, ” Lippman said.

Undoubtedly is will also reduce the strain on the Court system in that there are over 100,000 credit card collection cases brought each year in New York, according to the Unified Court System.