New York to Change Rules for Debt Collection Lawsuits

New York State Courts Chief Judge Jonathan Lippman Wednesday announced a set of reforms aimed at increasing requirements for collection agencies and debt buyers who file suits to recover debts from consumers in the state. Although open for public comment, the new rules are expected take effect in June.

The State of New York Unified Court System said that the proposed package of reforms represents the most comprehensive effort by a court system nationally to ensure a fair legal process for all debtors in consumer credit cases.

“While no one disputes that consumers should pay their debts or that businesses have every right to resort to the courts to collect what is legally owed to them, the Judiciary has an obligation to prevent inequitable debt collection practices in the courts and ensure a fair legal process for all litigants. Dubious consumer debt litigation practices can lead to unwarranted default judgments, often with devastating consequences for the debtor ─ typically a lower-income New Yorker struggling to support a family and find or maintain a job,” said Chief Judge Lippman.“These comprehensive reforms announced today, together with the ongoing efforts of our partners in the Executive and Legislative Branches, New York’s bar and legal services community, will set a national standard by which consumer debtors receive fair treatment in the courts.”

The reforms, available in full at http://www.nycourts.gov/rules/comments/PDF/ConsumeCreditPC-Package.pdf, are being issued for a 30-day public comment period, to expire on May 30, with implementation expected by mid-June 2014.

Lippman’s office noted that the package of reforms build on the collective efforts of the Attorney General’s Office, the State Department of Financial Services, and the State Legislature to reform legal debt collection practices and protect consumers, as well as on the best practices being developed and refined in the New York City Civil Court.

Among the proposed changes in consumer debt litigation practices and are:

• Requirements that creditors submit affidavits containing detailed proof in support of default judgment applications ensuring that the substantive and evidentiary standards for default judgments required under New York law are met.
• Statewide rules and policies to stop the practice of suing on debt when the statute of limitations has expired as well as to prevent “sewer service” in consumer debt cases.
• Procedures and user-friendly forms ensuring that unrepresented consumers who appear in court have access to comprehensible information and resources so that they can understand the claims against them and formulate appropriate defenses.
• Partnerships with bar associations and law schools to increase pro bono representation of defendants in consumer credit cases in the hardest hit areas.