New Rules for Debt Collection Suits Finalized in New York Courts

New York State Courts Chief Judge Jonathan Lippman Tuesday announced the formal adoption of new rules aimed at preventing default judgments in credit card debt collection cases. Lippman claimed that the reforms “reflect the most comprehensive effort by a court system nationally to ensure a fair legal process in consumer debt litigation.”

The new rules, announced in May, focus on the documentation presented by creditors and debt collectors in court actions seeking to recover debt. The rules were written primarily with debt buyers in mind.

“While creditors have every right to collect what is legally owed to them, the Judiciary has an obligation to prevent inequitable debt collection practices in the courts,” said Judge Lippman. “The adoption by the Unified Court System of these rigorous new requirements will undoubtedly avert unwarranted default judgments in consumer debt cases and serve to protect the rights of all New Yorkers, including some of our most vulnerable citizens.”

The NY State Court system provided a summary of the new rules:

• In consumer credit collection cases, creditors are required to submit affidavits containing detailed proof in support of default judgment applications, including the validity of the debt at issue and the chain of ownership for that debt

• In actions started by third-party debt buyers, affidavits will be required from the original creditor and all intervening debt buyers, and will have to be executed by individuals having personal knowledge. Copies of key documents must be attached to the affidavits, including the party’s credit agreement, the most recent monthly statement and other documents that serve to identify the correct defendant, the last four digits of the account at issue, a final itemized summary of the balance allegedly due and the complete chain of ownership for the debt,going back to the original creditor

• To prevent the practice of suing on time-barred debt, creditor’s counsel must submit an affirmation that the statute of limitations has not expired.

• To ensure that defendants receive notice of a lawsuit, the plaintiff must provide the court with an additional notice of the lawsuit to be mailed by the court to the defendant at the address where process was served. No default judgment will be entered if that notice is returned to the court as undeliverable.

The new rules and affidavits for default judgments will take effect on October 1, 2014, except in debt buyer cases, where the rules will apply to default judgment applications involving debt purchased from an original creditor on or after October 1, 2014. Effective July 1, 2015, however, the new affidavit requirements will apply in all debt buyer actions, irrespective of when the debt at issue was purchased from an original creditor.

The full new rule proposal was subject to a 30-day public comment period and was finalized on the basis of input received from over 50 representatives of the banking and debt-buying industries, consumer advocacy groups, state and local government agencies, bar associations and legal services organizations.