New York City’s recently amended debt collection rules – set to take effect on December 1, 2024, and which would strictly regulate various debt collection activities by debt collectors operating in the city – have sparked protest constitutional legality. It remains to be seen whether this challenge will affect the effective date. The plaintiffs seek declaratory and injunctive relief to prevent enforcement of the rules amending Title 6 of the New York City Rules, which they claim are unconstitutional and preempted by federal and state law.

On October 18, ACA International, Inc. (ACA) and Independent Recovery Resources, Inc. (IRR) filed a lawsuit in the Eastern District of New York against New York City Mayor Eric Adams and the Department of protecting New York City’s consumers and workers. (DCWP) and the DCWP Commissioner. The ACA represents approximately 1,800 members, including third-party collection agencies, law firms, creditors, asset purchasing companies and affiliated sellers.

The plaintiffs argue that the rules’ requirements will impose significant financial and operational burdens on debt collectors. For example, the rules require the keeping of detailed records and communication logs, which would require substantial investment in new systems and processes. Additionally, the rules’ expanded debt validation requirements and several other vague provisions make it difficult for debt collectors to understand and comply with, thereby increasing the risk of unintentional violations.

The plaintiffs point to several specific provisions of the rules that they claim violate the First and Fourteenth Amendments or are preempted by the federal Fair Debt Collection Practices Act (FDCPA) and by state laws and regulations that exclude municipal regulations. additional information regarding default judgments. These provisions include:

• Communication Restrictions: The rules limit debt collectors to three communication attempts per week, regardless of the medium used. This is more restrictive than the FDCPA’s limit of seven calls per week per account and would violate the First Amendment’s free speech protections.
• Prohibition of electronic communication: The rules prohibit debt collectors from using electronic communication methods, such as email or text message, unless they have obtained the consumer’s prior written consent. The plaintiffs argue that this violates the free speech protections of the First Amendment and is preempted by the FDCPA.
• Employer communication ban: The rules prohibit debt collectors from contacting consumers at their workplace without prior consent. The plaintiffs argue that this violates the free speech protections of the First Amendment and the Due Process Clause of the Fourteenth Amendment.
• Consumer reporting restrictions: The rules require debt collectors to disclose the existence of a debt to consumers at least 14 days before reporting it to a credit reporting agency. The plaintiffs argue that this is preempted by the FDCPA and violates the First Amendment’s free speech protections.
• Validation notice requirements: The rules require specific information in validation notices, including a “detail reference date” which may not exist for certain types of debt. The plaintiffs argue that this is preempted by the FDCPA and violates the Due Process Clause of the Fourteenth Amendment.

Troutman Pepper will continue to monitor this litigation and provide updates.