May 8, 2009

Assembly To Hold Public Hearing On Debt Collection
And Debt Management Industries

Assembly Speaker Sheldon Silver, Consumer Affairs and Protection Committee Chair Audrey I. Pheffer, Judiciary Committee Chair Helene E. Weinstein and Banks Committee Chair Darryl Towns today announced an Assembly public hearing to be held next week to examine how New York can best safeguard consumers from unfair and deceptive practices in the debt collection and debt management industries.

The forum is scheduled for 10:30 a.m. on Thursday, May 14 in Assembly Hearing Room 1923, 250 Broadway in Manhattan. The committees will explore the rising number of consumer complaints against debt collection and debt management firms.

In 2008, for the first time, the majority of consumer complaints handled by the New York City Department of Consumer Affairs were filed against debt collection companies. In the past decade, the Federal Trade Commission has reported receiving more complaints against third-party debt collectors than any other industry the agency regulates. These unfair practices include threats, harassment and collection methods that can cause significant financial and emotional harm to already vulnerable consumers. Unfair and questionable practices are also reported to be on the rise in the debt management industry, particularly among companies that offer debt settlement plans. These plans can jeopardize the credit worthiness of consumers by discouraging them from paying back debts directly to creditors in anticipation of a restructured debt settlement.

"During this economic crisis many hard working consumers face mounting personal debt," said Silver (D-Manhattan). "It is important that debt collection and management firms are not exploiting the financial insecurities of consumers through intimidation and deceptive debt collection methods. This hearing will help the Assembly understand what can be done to ensure consumers have safeguards in place against unfair practices that often only bury them under more debt."

"Advertisements promising to eliminate consumer debt fill the radio airwaves, late night television and the internet. Many consumers are confused as to which debt management entities are legitimate and provide beneficial assistance and which entities are likely to be scams," said Pheffer (D-Queens). "This hearing will examine how the state can best ensure that consumers are able to make informed choices when seeking debt management assistance and to avoid unscrupulous debt management companies."

"In a time of great economic uncertainty, debt collection firms should not be taking advantage of and intimidating hardworking people," said Weinstein (D-Brooklyn). "Abusive debt collection lawsuits exploit current gaps in our state's law. New York must ensure that best practices and strict guidelines are in place to prevent debt collection agencies from exploiting the sense of financial insecurity consumers are facing during this recession."

"Since he took office earlier this year, President Obama has taken action at the federal level to assist families who are enduring economic hardships," said Towns (D-Brooklyn). "Faced with mounting debts and the loss of income, many households are desperate for a means to manage their budgets. Unfortunately, unprincipled practices in the debt management industry actually may drive many people further into financial problems instead of offering assistance. This hearing will help us analyze what actions need to be taken by the state to protect consumers who use these industries."

Tightening credit markets, lost jobs and the current fragile state of the economy have lead to an increase in consumer use of these services. The hearing will focus on what legislative actions should be taken to ensure fair practices, including consideration of a bill that would require third-party debt collectors to be licensed by the Department of State (A.3926-A/Pheffer). Also under review is legislation that would require debt management services to register with the state Banking Department, provide insurance against fraud and notify consumers of all fees associated with the service (A.7268/Pheffer). The committees will also consider whether debt collectors should be required to notify consumers if a debt they are collecting is beyond its statute of limitations and whether consumers should have a private right of action to resolve deceptive debt practices.