The New York Department of Financial Services (DFS) announced on September 16 that it has filed a Statement of Charges against debt collector Forster & Garbus LLP (Forster) for alleged violations of the state’s Debt Collection Regulation, Part 1 of Title 23 of the New York Codes, Rules, and Regulations, promulgated in 2015.  The alleged violations involve Forster’s collection of student loans. The DFS states in its press release that the charges are the first brought by the DFS alleging violations of the Debt Collection Regulation.

The Debt Collection Regulation, in Section 1.4, requires a debt collector to inform the consumer of his or her right to request substantiation of a debt if the consumer disputes, orally or in writing, the validity of a charged-off debt or the debt collector’s right to collect a charged-off debt.  The debt collector can treat such dispute as a request for substantiation or must follow the requirements in Section 1.4 for providing the consumer with instructions on how to request substantiation.  The debt collector must provide written substantiation of a charged-off debt to a consumer within 60 days of receiving a request for substantiation and must cease collection of the debt until the written substantiation has been provided to the consumer.

Section 1.4 provides that substantiation of a charged-off debt includes:

  • the signed contract or signed application that created the debt or, if no signed contract or application exists, a copy of a document provided to the alleged debtor while the account was active, demonstrating that the debt was incurred by the debtor  (For a revolving credit account, the most recent monthly statement recording a purchase transaction, payment or balance transfer will satisfy this requirement);
  • the charge-off account statement, or equivalent document, issued by the original creditor to the consumer;
  • a statement describing the complete chain of title from the original creditor to the present creditor, including the date of each assignment, sale, and transfer; and
  • records reflecting the amount and date of any prior settlement agreement reached in connection with the debt pursuant to section 1.5 of this Part.

According to the Statement of Charges, Forster’s written policies included a provision setting forth its obligation under the DFS regulation to provide a consumer with written substantiation of a charged-off debt within 60 days of receiving a request for substantiation and to cease collection of the debt until written substantiation has been provided.  The policies also stated that Forster would request documentation to substantiate a debt from its client and would review the documents received to determine if they comply with DFS requirements.

The DFS alleges that despite its written policies, the DFS found numerous instances in which Forster failed to provide consumers with any substantiation, failed to provide sufficient documentation to consumers to substantiate debts, or failed to provide written substantiation within the 60-day timeframe.  As “frequently-occurring examples” of Forster’s provision of insufficient documents, the Statement of Charges cites:

  • Providing consumers with the application and a document titled “Statement of Purchased Account” which failed to clearly identify the creditors who purchased the consumer’s student loan
  • Failing to provide the underlying transaction documents, such as a loan application, which created the debts to be collected
  • Failing to provide complete chain of title, omitting assignments, sales and transfers of title of the debt
  • Merely providing a court document, such as a court judgment, with little or no other documentation

Under Section 408 of the Financial Services Law, the DFS can impose a civil penalty of up to $1,000 for a violation of the Debt Collection Regulation.  The DFS alleges in the Statement of Charges that “each failure to provide any substantiation, timely substantiation, or sufficient substantiation of debt constitutes an independent offense.”  The Statement of Charges sets a hearing date of January 12, 2021 on the DFS’s charges.