New York City’s Amended Debt Collection Rules Draw Legal Challenge

New York City’s recently amended debt collection rules — scheduled to go into effect on December 1, 2024 and which would stringently regulate various debt collection activities by debt collectors operating in the city — have drawn a constitutional legal challenge. Whether this challenge will affect the effective date is yet to be seen. The plaintiffs seek declaratory and injunctive relief to prevent the enforcement of the rules amending Title 6 of the Rules of the City of New York, which they argue are unconstitutional and preempted by federal and state law.

On October 18, ACA International, Inc. (ACA) and Independent Recovery Resources, Inc. (IRR) filed a complaint in the Eastern District of New York against New York City Mayor Eric Adams, the New York City Department of Consumer and Worker Protection (DCWP), and the DCWP Commissioner. ACA represents approximately 1,800 members, including third-party collection agencies, law firms, creditors, asset-buying companies, and vendor affiliates.

The plaintiffs argue that the rules’ requirements will impose significant financial and operational burdens on debt collectors. For instance, the rules mandate detailed record-keeping and communication logs, which will allegedly require substantial investment in new systems and processes. Additionally, the rules’ expanded debt validation requirements and several other vague provisions make it difficult for debt collectors to understand and comply, increasing the risk of unintentional violations.

The plaintiffs highlight several specific provisions of the rules that they argue violate the First and Fourteenth Amendments or are preempted by the federal Fair Debt Collection Practices Act (FDCPA) and state laws and regulations that foreclose additional municipal regulations on the subject of default judgments. These provisions include:

• Communication Restrictions: The rules limit debt collectors to three communication attempts per week, regardless of the medium used. This is more restrictive than the FDCPA’s limit of seven calls per week per account and allegedly violates the First Amendment’s free speech protections.
• Electronic Communication Ban: The rules prohibit debt collectors from using electronic communication methods, such as email or text, unless they have obtained prior written consent from the consumer. The plaintiffs contend this violates the First Amendment’s free speech protections and is preempted by the FDCPA.
• Employer Communication Ban: The rules bar debt collectors from contacting consumers at their place of employment without prior consent. The plaintiffs argue this violates the First Amendment’s free speech protections and the Fourteenth Amendment’s due process clause.
• Consumer Reporting Restrictions: The rules require debt collectors to disclose the existence of a debt to consumers at least 14 days before reporting it to a credit reporting agency. The plaintiffs argue this is preempted by the FDCPA and violates the First Amendment’s free speech protections.
• Validation Notice Requirements: The rules mandate specific disclosures in validation notices, including an “itemization reference date” that may not exist for certain types of debt. The plaintiffs argue this is preempted by the FDCPA and violates the Fourteenth Amendment’s due process clause.

By David N. Anthony, Stefanie Jackman & Ethan G. Ostroff on October 21, 2024

Troutman Pepper will continue to monitor this litigation and provide updates.