Governor Kathy Hochul signed the Consumer Credit Fairness Act (S.153/A.2382) that changes the landscape of debt collection in New York State forever and requires businesses to rethink their account receivable system. The legislation that was sponsored by Senator Kevin Thomas (D-Levittown), the chair of the NY State Senate Committee on Consumer Protection, and Assembly member Helene Weinstein (D-Brooklyn) will take effect in April 2022.
The Consumer Credit Fairness Act (CCFA) added several layers of consumer protections that will change the way debt collection agencies and creditors in general conduct business in New York.
Shortening the Statute of Limitations
The most significant change that the CCFA makes is the lowering of the statute of limitations (SOL). This reduction only refers to consumer credit transactions. If in the past a creditor had six years to take legal action now there are only three years. Once the 3 year deadline passes, the debt’s become legally unable to be enforced.
What Changes Should Businesses Make?
Considering the CCFA and the reduction of the Statute of limitations that will be effective in April 2022 business owners need to rethink the way they handle account receivables.
If until now a business could take their time with internal collection efforts, now the process requires them to make decisions faster. If the debtor refuses to pay and legal action is required then the lawsuit must be filed before the three-year mark. If there are several unpaid invoices then the Statute of limitations will start running beginning with the first unpaid invoice. Attempting to take legal action after the 3 year mark on the date of the first invoice – will mean that some invoices can not be paid.
It should be noted that even though the Statute of limitations limits the time frame to file a lawsuit it does not limit the ability to report the debt to a credit reporting agency. That being said, any communication with the consumer concerning a debt that is past the Statute of limitations requires careful verbiage and handling that will clearly articulate that the debtor is not required to pay and no legal action can be taken. Furthermore the debt collector is required to inform the debtor that upon making a payment, the payment restarts the statute of limitation countdown. Failure to do so is a violation of the FDCPA.
In anticipation for the CCFA to take force, businesses needs to re-calibrate and rethink their accounts receivable system:
First, ensure your business has a solid system tracking unpaid invoices, which will assist you in making decisions when to take legal action. Remember, even if you have an attorney you usually work with, drafting legal papers does take time and more often than not, attorneys are busy, it will be critical to ensure the process starts several months prior to the Statute of limitations.
Secondly, using a Collection agency that can handle both First Party services will assist in expediting payments and implement good sound Accounts receivable processes and practices and understands the new Collections playing field, will ensure businesses to collect their money faster and more of it with peace of mind.
When in the past hiring an agency was an afterthought or relegated to the back burner, this new legislation severely limits the time frame to collect on past due accounts, common sense dictates that partnering with an agency that invests in compliance, training, and technology will allow you to sleep well at night.
Changes in the Notice Sent to a Debtor
There are several changes to letters that can be sent to debtors in New York. Some changes relate to the legal action taken by creditors in cases of consumer debt. The CCFA requires more information to be included in the notice mailed to the defendants in consumer credit actions by the clerk of the court. Court filings will need to include more information than before concerning the debt starting with describing the debt and providing proof to the courts that the debt is owed to the plaintiff by the debtor.
For more information on Oxygen XL, First party services and how they can assist you in managing your accounts receivable, please call 845-579-2950 x 201 or email firstname.lastname@example.org