A settlement has been reached in a case brought by the New York Attorney General against Forster & Garbus, LLP, a big New York debt collection law firm, to prevent the collection of payday loans. Under New York law, debt collection firms are obligated to confirm that an underlying loan is not a payday loan before filing a collection lawsuit. According to a statement from New York Attorney General, Eric Schneiderman, “Payday loans are illegal because the interest rates far exceed the maximum of 16 percent allowed under New York law for most lenders not licensed by the state.”
Upon investigation, the attorney general found that NCEP, LLC placed its consumer debt, including payday loans, with Forster & Garbus for collection. The firm then made five separate attempts to collect on these loans from consumers in New York; however, upon notification, Forster & Garbus ceased its collection efforts on the accounts.
Under the terms of the recent settlement, Forster & Garbus is prohibited from collecting on credit transactions in New York until it procures a copy of a loan document, demonstrating in writing that the action does not concern a payday loan. Additionally, the firm must follow similar protocol when notified in writing that a current judgment or settlement may have involved a payday loan. After receiving the consumer complaint, Forster & Garbus must acquire a copy of the loan document to determine whether, in fact, a payday loan was involved—and, if so, dismiss the judgment and pay any necessary restitution to the consumer. Finally, under the settlement, Forster & Garbus paid fines and other costs totaling $10,000.