NYC Rule for Debt Collection Law Firms

New York City adopted Local Law 15 in 2009. Under this law, law firms that also act as debt collectors were added to the list of entities regulated as debt collectors. However, law firms that collect debt on behalf of clients through litigation are excluded from Local Law 15.

Local Law 15 has been challenged as being invalid under the principle that it impedes New York State’s authority to regulate lawyers. In 2014, the Second Circuit ruled the law did not appear to regulate attorneys collecting debts. And, this past June the New York State Court of Appeals explained that the law did not violate the state’s authority and, in fact, was "complementary and compatible with" current laws. Although Local Law 15 was ruled valid, there was a dissenting opinion from the Court of Appeals which argued that the difference between a lawyer acting as a debt collector and a lawyer collecting debt via litigation is "a distinction without a difference."

Individuals who oppose Local Law 15 also argue that the law violates New York City’s charter, which designated the Department of Consumer Affairs as the agency to license debt collectors. The Court of Appeals did not rule on this issue, and instead asked the Second Circuit to once again review the case. In doing so, the Court of Appeals stated "the city should not be prevented from taking permissible steps to curb abusive debt collection practices." Several weeks ago, the Second Circuit upheld the law once again. Now, on remand, the case is heading back to the district court for the final challenge that Local Law 15’s regulation of attorney conduct is unconstitutionally vague.

Although Local Law 15 faces another hurdle, attorneys for the city continue to argue that consumers need to be protected by cracking down on all types of debt collectors that use high-pressure tactics.

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