NYC Bill Would Require Licensing of Debt Purchasers

A bill introduced Tuesday in the New York City Council would require debt purchasers to register with the city’s Department of Consumer Affairs (DCA) as “debt collection agencies”, a departure from an opinion the DCA handed down earlier this year. The collector trade group ACA International came out against the proposal, saying its adds unnecessary regulation for "passive" debt purchasers that don’t interact directly with consumers.

The city currently requires collection agencies operating in the Big Apple to register and obtain a license from the DCA, but debt purchasers who do not actively engage in collection activities are exempt from registration. The bill, Int. No. 660-2007, requires firms that purchase debt for the purpose of collection – even if the firm refers the collection activity to a third party – to register as and follow regulations aimed at “debt collection agencies.”

In March of 2007, at the request of ACA International, Consumer Affairs provided a clarifying opinion that said debt buyers, under the current code, were not required to register with the department (“New York City Clarifies License Requirements for Debt Buyers,” March 27). “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,” the DCA said in its written statement. The new bill appears to change the code to specifically include debt purchasers.

That is an unnecessary step and goes against a well-researched opinion by Consumer Affairs, according to Rozanne M. Andersen, the ACA’s general counsel. "I think the council is taking an overly broad view on this. Those who collect debt should be licensed. But passive debt buyers need not be registered," she said.

Andersen said that ACA’s New York state division will take the lead on working against the proposal.

Introduced by Councilmen Daniel Garodnick and Leroy Comrie, Jr., the bill is a direct response to a report issued in November by the Urban Justice Center – titled “Debt Weight: The Consumer Credit Crisis in New York City and its Impact on the Working Poor” – that detailed what it classified as widespread abuse of New York City’s civil courts on the part of debt collectors and their attorneys seeking judgments for debts owed by consumers. The report, using a random sample of 600 civil debt cases filed against consumers, found that more than 89 percent of the cases reviewed were initiated by third-party debt buyers. The report recommended that all debt buyers register with the DCA as collection agencies.

Although the focus of the bill is debt purchasers, unburdening overburdened civil courts appears to be a motivating factor in the legislation. “Unlicensed debt collectors are clogging the courts and preying on consumers,” Garodnick said Tuesday in a statement on the bill.