On November 8, 2021, Governor Hochul signed into law the Consumer Credit Fairness Act (Legislation S.153/A.2382). The intent behind the legislation is to protect consumers from abusive debt collection practices. The Act requires creditors to provide consumers with detailed information pertaining to debts for which legal action has been commenced as well as processes available to them for defending against a debt collection lawsuit.
The legislation amends the New York Civil Practice Law and Rules (CPLR) and serves to expand consumer protections. Most notably, a new statute of limitations provision has been added to the CPLR which provides that any court action arising out of a consumer credit transaction where a purchaser, borrower or debtor is the defendant must be commenced within three years after the cause of action accrues (typically, when the debtor is deemed in default of the obligation). This is a significant reduction from the prior six year statute of limitations. The new statute will not permit a consumer debt to be revived by payment or acknowledgement of the debt by the consumer after the three year statute of limitations has expired. The new statute of limitations for consumer credit transactions will take effect on April 7, 2022.
There are also several other amendments to the CPLR under the Act that significantly increase the procedural requirements to obtain a judgment in consumer credit transaction cases. These amendments are effective on May 7, 2022 and are summarized below.
The complaint filed by the creditor’s attorney to commence an action based on a consumer credit transaction will need to have attached to it a copy of the underlying contract/loan agreement or the charge off statement if a cause of action is based on a defaulted credit card. The complaint also must provide the last four digits of the account number, the date and amount of last payment, the name of the original creditor, and an itemization of the amount claimed to be due broken down into principal, finance charges, fees and costs.
For any action based on a consumer credit transaction, after an action has been commenced and service effected, an additional notice in English and Spanish must be prepared by the creditor’s attorney and sent to the clerk of the court with a postage paid envelope addressed to the consumer at the address where the summons and complaint were served. The clerk of the court then mails the notice to the consumer, which explains to the consumer the consequences of failing to respond to the pending action and provides links to resources that are available to help defend against the action. If the notice is returned by the post office to the clerk as undeliverable, the clerk will not accept a default judgment for filing. A similar notice must also be sent to the clerk of the court to forward on to the consumer if an answer is filed and the creditor’s attorney files a motion for summary judgment. This notice provides information on how to defend against the summary judgment motion and resources available to assist in doing so.
To enter a default judgment, the creditor’s attorney will need to provide: 1) an “affidavit of facts” from the creditor setting forth facts regarding the underlying debt, the default and the amount due; and 2) an attorney affirmation stating that after reasonable inquiry, there is no reason to believe the statute of limitations has expired. There are additional requirements for debt that has been purchased or assigned.
A consumer will no longer be deemed to have waived the defense of improper service if it is raised as a defense in the answer and he fails to move to dismiss on that ground within sixty (60) days after serving the answer. Rather, the defense of improper service is preserved and will not be time barred.
Finally, in the event a creditor seeks to affirm an award of arbitration, the CPLR will require that the agreement to arbitrate be annexed to the court petition as well as the demand to arbitrate with proof of service and proof of service of the arbitration award upon the consumer. The creditor must also ensure that the calculation of figures used by the arbitrator in determining the award is set forth.
The legislature has tasked the Chief Administrative Judge with providing Spanish translations for the notices and form affidavits discussed above, which will be promulgated in the New York Code of Rules and Regulations.
Creditors should keep in mind the new three year statute of limitations when reviewing matters for referral for suit and also that once the three year statute has passed, a debt cannot be revived by payment or acknowledgement.
This alert does not purport to be a substitute for advice of counsel on specific matters.
Harris Beach has offices throughout New York State, including Albany, Buffalo, Ithaca, Long Island, New York City, Rochester, Saratoga Springs, Syracuse and White Plains, as well as New Haven, Connecticut and Newark, New Jersey.