Law Firms Must Apply For Debt Collection License In New York

November 30th is a big deadline for attorneys and law firms acting as debt collection agencies in New York City. Those practicing debt collection have until this date to submit an application for a Debt Collection Agency license from the New York City Department of Consumer Affairs (DCA). The DCA requires that any business that seeks to collect personal or household debts from New York City residents must have a Debt Collection Agency License. This licensing requirement includes debt buyers, businesses that buy overdue debt, and then try to collect money by suing consumers in court.

This new requirement comes in the wake of a decision from the Court of Appeals for the Second Circuit in Eric M. Berman P.C v. City of New York. The issue in this case was Local Law 15, passed by the City of New York in 2009, that required debt buyers and collection attorneys to obtain licenses as collection agencies and adhere to new rules also laid out in the legislation. The Plaintiffs in this case argued that New York City had no authority to regulate the practice of law in the state of New York. They contended that by policing attorney conduct related to debt collection, Local Law 15 intruded upon New York State’s authority to regulate the practice of law.

The Court of Appeals identified two questions to be considered in this case:

  1. Does Local Law 15, insofar as it regulates attorney conduct, constitute an unlawful encroachment on the State’s authority to regulate attorneys, and is there a conflict between Local Law 15 and Sections 53 and 90 of the New York Judiciary Law?
  2. If Local Law 15’s regulation of attorney conduct is not preempted, does Local Law 15, as applied to attorneys, violate Section 2203(c) of the New York City Charter?

As to the first question, the Court of Appeals found that Local Law 15 is not preempted by New York State’s authority over attorney conduct. As to the second question, the Court of Appeals declined to reach a decision on this issue. The Court reasoned that because the District Court erred in rejecting Local Law 15 on preemption grounds, its judgment should be vacated in part regarding this question. Having determined that Local Law 15 did not conflict with the State’s authority to regulate attorneys or its authority to license the practice of law, the Court of Appeals held that the law did not conflict with Section 2203(c) of the City Charter.

The New York City Administrative Code now states that any person acting as a debt collection agency must obtain a license because of the Berman decision. According to the DCA, those meeting the following criteria are not considered debt collection agencies and do not have to register for a license:

  • Attorneys or law firms collecting debt in such capacity on behalf of and in the name of a client solely through activities that may only be performed by a licensed attorney
  • Attorneys who engage in debt collection activity who are members of law firm that is licensed as a debt collector
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