Consumer Debt Collection in New York

Of importance to consumers facing debt collection problems is 15 USC Section 1681, the Fair Credit Reporting Act.

A “debt collector” is generally any person who, in the ordinary course of business, regularly, on behalf of himself or others, engages in the collection of consumer debts. A “consumer debt” is generally a debt incurred by a natural person in exchange for property, services or money acquired, on credit, for personal, family, or household purposes.

An attorney who engages in debt collections, needs to follow debt collection laws just like non-attorneys. In Mallory v. City of College, 678 F. Supp. 703 (N.D. III. 1987), the court ruled a lawyer using a consumer report in a lawsuit that does not relate to the collection of a pre-existing debt does not have a permissible reason to obtain the consumer report. The attorney does not have the right to get a consumer report only to satisfy want to evaluate whether litigation is worth pursuing against a tortfeasor.

In 1977, the federal Fair Debt Collection Practices Act was adopted. The federal act regulates “debt collectors”, and defines “debt collector” narrower than some state statutes like California. Under the federal act, a “debt collector” is an individual whose “principal purpose … is the collection of … debts” or who “regularly collects or attempts to collect, directly or indirectly, debts owed or due [to] another”, meaning debts originally due or owed to a person other than the business collecting the debt. Usually, original creditors are not covered by the federal act. Lawyers must follow the federal statute when involved in consumer debt collections.

If a debtor attempts to negotiate a debt settlement, the debtor should stay away from one-sided prevailing party payments on attorneys’ fees. In some states like California, the reciprocal attorneys’ fee statute applies when a contract contains a provision allowing attorney’s fees to a party when s/he is required to litigate to enforce the contract. The court may award reasonable attorney’s fees to the opposing party, when that party prevails in any action, whether as plaintiff or defendant, with respect to the contract.

In actions not involving real estate, a collector may bring actions only in a judicial district: (a) in which the consumer signed the contract disputed, or (b) in which the consumer resides at the beginning of the action.

Look to an experienced New York bankruptcy attorney when dealing with debt collectors.