New York Enacts the Consumer Credit Fairness Act, with Immediate Impact on Collections Litigation in the State

On November 8, 2021, New York Governor Kathy Hochul signed into law the Consumer Credit Fairness Act (the Act). The Act provides new requirements and prohibitions for debt collection in New York State and reduces the statute of limitations on suits filed by creditors from six years to three years. The Act is also part of an uptick in newly enacted consumer protection measures by state lawmakers.

New Provisions Under the Act

The newly enacted law (S.153/A.2382) modifies sections 105, 213, 3012, 3016, 3211, 3212, 3213, 3215, 5019, and 7516 of the New York Civil Practice Law and Rules (CPLR), adds sections 214-i and 306-d as new amendments to the CPLR, and amends section 212 of the New York Judiciary Law. In addition to reducing the six-year statute of limitations for commencement of actions arising out of consumer credit transactions to three years, the Act:

• requires plaintiff creditors to include in pleadings information about the debt at issue – such as by identifying the debt or account or by providing proof that the debt is owed to the creditor;
• establishes specific requirements for applications for default judgment in consumer credit transaction cases – including requiring a notice by mail to the consumer debtor by the clerk of the court;
• requires specific documents a plaintiff creditor must provide in order to confirm an arbitration award – including the agreement to arbitrate, the demand for arbitration, the arbitration award, and the proof of service;

• requires pleadings served on debtors in actions arising out of consumer credit transactions to be served with a summons to appear; and
• requires the contract or written instrument on which an action arising out of a consumer credit transaction is based to be attached to the complaint.

Most provisions of the Act took immediate effect, but the Act's statute of limitations provision does not take effect until April 7, 2022.

Increasing Laws and Regulations for Consumer Creditors in New York

The Act's passage is part of New York lawmakers' recent ongoing efforts to beef up consumer protections in the Empire State. Last month, Governor Hochul signed into law an amendment to New York's general business law requiring debt collectors to inform debtors that written communications are available in large-print format (S.737A/A2260A). The governor is also expected to sign pending legislation that would adjust the rate of interest on money judgments in actions involving consumer debtors to be calculated at 2 percent each year, compared with the current statutory rate of 9 percent (S.5724A/A.6474A).

In addition to the above consumer credit transaction protections, the Consumer Credit Fairness Act was signed into law the same day the governor enacted consumer protection legislation involving communication prohibitions for utility companies in connection to residential customer complaints (S.4823/A.3359) and legislation altering the composition of the New York Public Service Commission to require at least one commissioner to be experienced in utility consumer advocacy (S.1199/A.5838). According to the governor, these newly enacted laws "build on . . . previous efforts to alleviate debt stresses for New Yorkers."

In addition, in late October 2021, the New York Department of Financial Services (DFS) released proposed amendments to rules applicable to debt collection by third-party debt collectors and debt buyers (23 N.Y. Codes, Rules and Regulations (NYCRR) Part 1) for comment by impacted small business. If the DFS moves forward with a formal notice of proposed rulemaking, the proposal would then be subject to a 60-day comment period. The proposal aligns the DFS regulation with the new requirements in federal Regulation F taking effect on November 30, 2021, but also proposes changes to the current DFS rule with regard to telephone and electronic communication, statute of limitations disclosures, substantiation requirement, and initial disclosures.

This article is not intended to provide legal advice or opinion and should not be relied on as such. Legal advice can be provided only in response to specific fact situations.