New York City Overhauls Debt Collection Rules and Proposes New “Debt Collector” Definition

Collection agencies engaged in collecting debts from consumers residing in New York City (NYC) should be aware of a flurry of new practice requirements taking effect in 2025. Importantly, these requirements will apply to first-party debt collectors, including creditors collecting on their own accounts.

The changes were adopted in a Final Rule issued by the NYC Department of Consumer and Worker Protection (DCWP)¹ in August 2024 and having an original effective date of December 1, 2024. The DCWP subsequently published guidance in November 2024 postponing the effective date of the Final Rule until April 1, 2025. At around the same time, the DCWP published a Proposed Rule intending to clarify its definition of a “debt collector” to resolve stakeholder confusion about whether the term “continues to apply” to first-party debt collectors.

This article discusses the scope of the licensing obligation for debt collection agencies in New York City in relation to the Final Rule, summarizes certain more material changes to collection agency practice requirements, and analyzes possible regulatory repercussions stemming from the DCWP’s proposed amendment to the definition of a “debt collector.”

Regulation and Licensing of Debt Collection in New York

New York is one of the few US states that does not license debt collection at the state level. Instead, debt collection is regulated and licensed in New York at the municipal level, with cities such as Buffalo and Yonkers, in addition to NYC, imposing their own licensing and practice requirements on debt collectors.

NYC’s debt collection provisions are scattered throughout the city’s Administrative Code and the Rules of the City of New York (the “NYC Rules”). NYC’s Administrative Code imposes the city’s licensing requirement for collection agencies and sets out a limited number of practice requirements and prohibitions.² The NYC Rules impose an additional range of practice requirements on debt collectors, the bulk of which pertain to prohibitions on unconscionable and deceptive trade practices. Somewhat confusingly, the respective scopes of the Administrative Code and the NYC Rules differ, as described below.

NYC Administrative Code and Licensing

The debt collection agency licensing obligation under NYC’s Administrative Code applies to a third-party collection agency or a debt buyer, regardless of whether the debt buyer is passive or actively collects on purchased debts. Under Section 20-489 of the Administrative Code, “debt collection agency” means “a person engaged in business the principal purpose of which is to regularly collect or attempt to collect debts owed or due or asserted to be owed or due to another and shall also include a buyer of delinquent debt who seeks to collect such debt either directly or through the services of another by, including but not limited to, initiating or using legal processes or other means to collect or attempt to collect such debt.” Thus, a debt collection agency would not include a person that collects on their own debts unless the debt was bought from another party while delinquent. The Administrative Code defines a “debt” as a consumer-purpose debt (in which the debtor’s obligation arises out of a transaction made primarily for personal, family, or household purposes), thus excluding collectors of commercial or business purpose debts. The Code provides a number of exclusions from the debt collection agency definition that broadly mirror exclusions provided under the federal Fair Debt Collection Practices Act (FDCPA).

Notably, the Administrative Code omits an exclusion for a collector of a debt which was not in default at the time servicing commenced that appears in the federal FDCPA, and a number of state laws that reference the FDCPA or mirror its definition of “debt collector.” This exclusion is widely relied on by loan servicers that would otherwise qualify as debt collectors, if not for the fact that the defaulted debts they service were performing when they began servicing the accounts.

Persons that fall under the definition of a debt collection agency and do not qualify for an exclusion must obtain a license from the DCWP. In addition to the licensing requirement, the NYC Administrative Code sets out a limited set of practice requirements and prohibitions for collection agencies pertaining to communications with debtors, debt validation, and disclaimers relating to the statute of limitations. These provisions are modest compared to the range of requirements imposed by the Final Rule.

The Final Rule

The Final Rule amends, and supplements, the range of practice requirements applicable to debt collectors under the NYC Rules, including but not limited to the following:

• Broadened recordkeeping and call recording requirements, extending also to a debt collector’s third party collection contractors.
• New requirements pertaining to a debt collector’s monthly log of all communications and attempted communications with NYC debtors, and a new requirement to maintain monthly logs of consumer complaints, disputes, and requests to cease further communication.
• Requirements to maintain policies addressing time-barred debts, verification of debts, credit furnishing, and medical debt.
• Disclosure requirements, including a requirement that validation of debt notices contain a disclosure advising that medical debt information cannot be reported to a consumer reporting agency, regardless of whether the debt at issue is a medical debt, and that a consumer disclosure regarding time-barred debts be provided when the debt obligation is outside of the statute of limitations. Debt collectors that sell, transfer, or assign time-barred debt also must provide clear and conspicuous notice to the assignee that the statute of limitations has expired.
• Requirements for communications with debtors, including attempted communications and limited-content messages (with those terms being defined consistent with the federal Regulation F).
• Regulation of electronic communications with debtors, including but not limited to emails, text messages, and instant messages, and a requirement that NYC debtors consent to receive electronic communications (unless an exemption applies) and be given a way to opt out.
• Amended validation of debt notice requirements, including mandatory notice language, formatting and delivery requirements.
• The adoption of a new “Notice of Unverified Debt” disclosure requirement. The Notice of Unverified Debt must be provided to a consumer when a consumer disputes a debt or requests verification and the debt collector is unable to provide written verification of the debt. The notice must also be provided to a buyer, assignee, original creditor or law firm before selling or transferring the debt. A debt collector is not permitted to collect a debt that is subject to a Notice of Unverified Debt.
• Express debt collector liability for violations by third party contractors, including—according to the DCWP’s FAQs—call centers and mail distribution centers.
• Rescission of limitations on the liability of an employer for a debt collector employee’s violations where the violation was not intentional and resulted despite the maintenance of reasonable procedures.

The Final Rule does not impose a requirement to maintain an office location in NYC or the state of New York.

Who is a Debt Collector?

In addition to the requirements summarized above, the Final Rule broadened the definition of a “debt collector” under Section 5-76 of NYC’s Unfair Trade Practices rule, which prohibits numerous “unconscionable and deceptive trade practices” in connection with the collection of a debt. Prior to the amendment, Section 5-76 defined "debt collector" to mean an individual or natural person (not an organization) employed to collect debts—specifically, “an individual who, as part of his or her job, regularly collects or seeks to collect a debt owed or due or alleged to be owed or due.” It may be noted that this definition did not limit a debt collector to a person that collects debts owed to another, and thus could include a creditor collecting its own debts.

The Final Rule amended the debt collector definition to include both a natural person and an organization. The amended definition still appears to capture first-party collectors. As amended by the Final Rule, a debt collector is “any person, including any natural person or organization, including a debt collection agency, engaged in any business the principal purpose of which is the collection of any debts or who regularly collects, or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due to another person.” The Final Rule also extended the debt collector definition to include a creditor collecting its own debts in a name other than its own, and provided a new exemption for a third party involved in the judicial enforcement of a debt. As the DCWP’s FAQs point out, a debt collector under the Final Rule does not exclude persons servicing accounts that were not in default when servicing began, which aligns with the definition of a debt collection agency used for licensing purposes.

Under the Proposed Rule issued in November, the DCWP seeks to remove any remaining doubt on this point by amending the debt collector definition yet again, this time so that it expressly includes a person who regularly collects debts owed “to the person collecting or attempting to collect the debts.” Moreover, the DCWP stated in its Notice of Public Hearing for the Proposed Rule that it “has always intended that its rules apply to collectors collecting on their own debts.”

Key Takeaways and Looking Ahead

The debt collector definition at issue in the Final Rule and the Proposed Rule is operative only for the DCWP’s unfair trade practices provisions, which include restrictions on unconscionable and deceptive trade practices, and does not relate to debt collection agency licensing. Violations of the debt collection agency licensing obligation and practice requirements are punishable under the Administrative Code and NYC Rules by escalating fines assessed on a per-violation basis. Fines can reach $3,500 per violation for repeated violations.³ Violations of certain provisions also carry liability for criminal penalties.

The Final Rule takes effect April 1, 2025. Persons qualifying as a debt collector should take steps to implement processes for compliance with applicable practice requirements by that time.

¹ The DCWP was formerly named the Department of Consumer Affairs.

² New York City, N.Y., Code § 20-490 et seq.

³ https://codelibrary.amlegal.com/codes/newyorkcity/latest/NYCrules/0-0-0-102086; New York City, N.Y., Code § 20-494; New York City, N.Y., Code § 20-119a; New York City, N.Y., Code § 20-106