New York City Clarifies License Requirements for Debt Buyers

The New York City Department of Consumer Affairs was recently asked by ACA International to address an inquiry as to whether “debt buyers” that do not themselves engage in collection activities must be licensed by the Department.  “Debt buyer” is a term commonly used to describe a purchaser or assignee of defaulted debt.    The Department responded as follows:
 
In addressing this question, the Department first confirms its position that a purchaser or assignee of defaulted debt whose principal purpose is the collection of that debt, whether for itself or others, is a “debt collection agency” under New York City Administrative Code § 20-489 (a).  Debt buyers that engage in debt collection activities must therefore be licensed by the Department in order to collect debts in New York City.  New York City Administrative Code § 20-490.
 
A debt buyer that merely purchases or acquires defaulted debt but does not engage in collection activities itself does not require a license from the Department.  Administrative Code § 20-489 defines a debt collection agency as “a person engaged in business the principal purpose of which is to regularly collect or attempt to collect debts owed or due or asserted to be owed or due to another.”  In enacting this statute, the City Council sought to curb abusive practices of debt collection agencies by requiring licensing of those entities dealing directly with the consumer public in the collection of debts.  Administrative Code § 20-488.  Thus, under the Administrative Code, a “debt collection agency” is an entity engaged in actively collecting or attempting to collect debts.
 
Some have suggested that as long as debt buyers that do not themselves engage in collection activities “refer their accounts to a licensed collection agency or a law firm (who is exempted) [sic], that should satisfy the concern of the DCA.”   The Department takes this opportunity to make clear that all attorneys and law firms are not exempt from our licensure requirements.  The Code narrowly exempts from the definition of “debt collection agency” “any attorney-at-law collecting a debt as an attorney on behalf of and in the name of a client.”  New York City Administrative Code § 20-489 (a) (5) (emphasis added).  Thus, the Code’s exemption applies to those attorneys whose practice is limited to legal activities such as the filing and prosecution of lawsuits to reduce debts to judgments. The narrow exception does not, however, cover attorneys or law firms that regularly engage in activities traditionally associated with debt collection such as sending demand letters (dunning notices) or making collection telephone calls to consumers.  Such attorneys and law firms are “debt collection agencies” under the New York City Administrative Code and must be licensed by the Department.

In response to the letter from the DCA, ACA International issued the following guidelines for their members:

All entities that meet the criteria (outlined in the letter above) and need to obtain a license to collect debts in New York City, may do so without penalty unless the debt collection agency has failed to pay previously imposed penalties if the application is received by DCA by Friday, May 11, 2007. The reference to previously imposed penalties means past penalties imposed by the DCA which are due and owing, which the entity had agreed to pay or was ordered to pay or which were the subject of a formal notification.

To encourage compliance and facilitate an easy application process, DCA will accept complete applications BY MAIL or IN-PERSON at the DCA Licensing Center, located at 42 Broadway, 5th floor in Lower Manhattan. Hours of operation at the DCA Licensing Center are Monday through Friday 9:00am-5:00pm, and Wednesdays 9:00am-5:30pm. Applications by mail should be sent to:

The NYC Department of Consumer Affairs
ATTN: Lynn Darden
42 Broadway, 5th floor
New York, NY 10004

All applicants are encouraged to use the online “fill-able” Basic Application Form, which is found on DCA’s website at www.nyc.gov/consumers. Applicants can type in their information, save it to their desktop if preferable, print out, and bring or send to the DCA Licensing Center for quick scanning. Using the online form first makes it easier for applicants, especially once at DCA. Please be sure to include all necessary documentation with the Basic Application Form.
 
Members of ACA are reminded they are required to be properly licensed as a condition of membership in the association and that their errors and omissions insurance policy may require proper licensure as a condition of coverage.