The New York Attorney General and the debt buyers who sued on expired debts
Between May 2014 and April 2015, the New York Attorney General announced settlements with four large debt buyers that had sued New Yorkers on debts the law no longer allowed them to sue on. Most of the people sued never answered, and the companies took default judgments. The settlements required the companies to vacate more than 7,500 judgments, about $34 million in all, and to pay civil penalties.
A public record, not a client of this firm. Everything on this page comes from the New York Attorney General's press releases cited at the end. The companies settled; no court decided the Attorney General's allegations. Usher Law Group did not represent anyone in these matters, we publish no results of our own, and nothing here predicts the outcome of any other case.
A debt buyer purchases old unpaid accounts, usually credit cards, for a fraction of their face value and then tries to collect the full balance. One way to collect is to sue. In New York, most people sued on consumer debts do not answer, and the court enters a default judgment. A default judgment lets the company freeze a bank account and take part of a paycheck.
There is a limit on this. Every state sets a deadline for suing on a debt, called a statute of limitations. Once it runs, the person sued has a complete defense. But the defense only works if someone raises it. A person who never answers the lawsuit never raises it, and a judgment can be entered on a debt that was too old to sue on.
That is what the New York Attorney General said four of the country's largest debt buyers had done, over and over, for years. Between May 2014 and April 2015 the office announced settlements with all four.
The rule the companies broke
In those years, New York generally allowed six years to sue on a debt. But New York also has a borrowing statute, CPLR 202. When a claim arose in another state, the suit has to be timely under both New York's deadline and the deadline of the state where the claim arose, and the shorter one wins.
The Attorney General's releases gave an example. Many credit card banks are located in Delaware, which allows three years. If the original creditor was in Delaware, the three-year limit governed, even though the case was filed in New York.
According to the Attorney General, the debt buyers filed suits that were timely under New York's six years but not under the shorter out-of-state limit. The consumers, most of whom did not respond, lost by default on claims that were untimely under New York law.
The four settlements
- Portfolio Recovery Associates, May 8, 2014. The Attorney General said the company obtained more than 2,000 improper judgments since 2008. It agreed to vacate them and pay a $300,000 civil penalty.
- Sherman Financial Group, May 8, 2014. More than 400 improper judgments, a $175,000 civil penalty. Together with Portfolio Recovery, nearly 3,000 judgments with about $16 million in outstanding balances were to be vacated.
- Encore Capital Group, January 9, 2015. Encore, whose subsidiaries include Midland Credit Management, agreed to seek to vacate more than 4,500 judgments totaling nearly $18 million and to pay $675,000 in civil penalties and costs. The Attorney General also said its employees had signed hundreds of affidavits a day without reviewing them or knowing the facts of the debts, the practice called robosigning.
- Asta Funding, April 15, 2015. Asta and its subsidiaries Palisades Collection and Palisades Acquisition XVI agreed to move to vacate more than 300 judgments totaling more than $1.7 million and to pay $100,000 in penalties and costs.
New York Attorney General v. four debt buyers
More than 7,500 default judgments on time-barred debts were to be vacated, and the companies paid civil penalties and costs of $300,000, $175,000, $675,000 and $100,000.
Source: NY Attorney General, April 15, 2015. A public record of someone else's case, not a result of this firm and not a prediction.
The money figures are the balances of the judgments being wiped out, not cash paid to consumers. The penalties went to the state. What the people sued got was the end of a judgment that could have followed them for years.
"Debt collectors must follow the same rules the rest of us do when bringing lawsuits," the Attorney General said in announcing the first two settlements.
What the companies promised to change
Vacating the old judgments fixed the past. The settlements also set rules for the future. The companies agreed to:
- Stop collecting on the vacated judgments. A vacated judgment cannot be used to restrain a bank account or garnish wages.
- Tell consumers when a debt is too old. Collection letters had to disclose when the time to sue had passed and that the company would not sue.
- Tell consumers when a debt is too old to report. The credit reporting law limits how long most negative items can appear on a credit report. The companies agreed to disclose when a debt was past that period.
- Put the dates in the complaint. Future collection complaints had to include the information needed to check the statute of limitations, with an affidavit that the company had made a reasonable inquiry into it. The Asta settlement also required that notarizations take place in front of a licensed notary.
The Encore settlement gave consumers with covered judgments ninety days to contact the Attorney General's office about having a judgment vacated. That window closed long ago.
What it means for you now
The law has moved further in the consumer's direction since these settlements. New York's Consumer Credit Fairness Act, effective April 7, 2022, shortened the time to sue on a consumer credit transaction to three years, and once that time runs, a later payment or acknowledgment does not restart it (CPLR 214-i). Federal Regulation F now says a debt collector may not sue or threaten to sue on a time-barred debt (12 C.F.R. § 1006.26(b)). Our post on being sued on an old credit card in New York walks through the current rules.
- If you have been sued, do not ignore the papers. The time to answer is short, and the statute of limitations helps you only if you raise it. Read sued by a debt collector first.
- Check the dates. The date of the last payment and the date the suit was filed decide whether the debt was too old. Our page on zombie debt explains how to find them.
- Watch the one-year clock. A claim under the Fair Debt Collection Practices Act for a lawsuit on a time-barred debt must be filed within one year of the violation (15 U.S.C. § 1692k(d)).
The FDCPA requires a collector found liable to pay the consumer's reasonable attorney's fees and costs. Under GBL 349, a court may award fees to a consumer who wins. These settlements are a separate matter from the federal orders described in our story on the CFPB orders against Encore and PRA.
The pages this story points to
Zombie debt
Old debts, the time limits, and what a collector may and may not do.
Read →Sued by a debt collector
The answer deadline, the defenses, and the claims you can raise back.
Read →New York law
GBL 349, CPLR 214-i and the city and state collection rules.
Read →Sources. NY Attorney General, "A.G. Schneiderman Announces Settlements With Two Major Consumer Debt Buyers For Unlawful Debt Collection Actions," press release (May 8, 2014); "A.G. Schneiderman Obtains Settlement From Major Debt Buyer Who Filed Thousands Of Time-Barred Debt Collection Actions," press release (Jan. 9, 2015); "A.G. Schneiderman Obtains Settlement With Fourth Debt Buyer Vacating $1.7M In Improperly Obtained Debt-Collection Actions," press release (Apr. 15, 2015); N.Y. CPLR 214-i; 12 C.F.R. § 1006.26.
Common questions
What is a time-barred debt?
It is a debt that is too old to sue on because the statute of limitations has run. In most places the debt itself does not disappear, but the time limit is a complete defense if the person sued raises it. Federal Regulation F now says a debt collector may not sue or threaten to sue on a time-barred debt.
How long does a creditor have to sue on a credit card in New York today?
For a consumer credit transaction, New York now allows three years under CPLR 214-i, part of the Consumer Credit Fairness Act. The settlements on this page were reached under the older rules, when the general limit was six years but a shorter out-of-state limit could apply through New York's borrowing statute, CPLR 202.
I have an old judgment from a case I never answered. Could it be one of these?
Possibly, but the settlements named specific companies and specific judgments, and the Attorney General's notices gave a window to ask for relief. Whether or not your case was covered, an old default judgment can be challenged in the court that entered it. Get the court file, look at the dates, and talk to a lawyer.
Tell us what they did.
One conversation with an attorney, in your language. We tell you which laws the collector or the credit bureau broke, which deadline runs first, and what to save this week. If it is not a case we can take, we say so and tell you where to go.
(718) 484-7510The FDCPA and the FCRA require a company found liable to pay the consumer’s reasonable attorney’s fees and costs. Our fee arrangement is confirmed in a written retainer before we begin. English, Russian and Spanish in-house; an interpreter for any other language.