NY City Tightens Screws on Debt Collectors

In the past 45 days, New York City has adopted two new policies that stand to help residents counter unlawful debt collection practices. But advocates say very little is being done to penalize the debt collectors who for years have broken pre-existing laws.

The majority of the 300,000 New Yorkers sued annually for bad debt have their wages garnished and bank accounts emptied on fraudulent grounds, after their debt collectors don't take suitable steps to notify them they are being sued, said Johnson Tyler, an attorney for South Brooklyn Legal Services who helps low-income people fight illegal debt collection.

The Department of Consumer Affairs has received 2,667 debt collection complaints in the past three years, according to a fact sheet the department displayed at a press conference this week.
In some cases, the Bloomberg administration has helped debtors ensnared by bad collectors get restitution for their losses. In the past three years, DCA restored $4.2 million in wrongful debt, charging back on average $1,559 per violating company, according to the fact sheet.

The New York attorney general's office is seeking restitution for other debtors and DCA has forced some violating companies to pay fines or surrender their licenses. Between January 2008 and March 2010, at least 32 paid a median fine of $300, according to testimony given by Tyler. During that time, at least 11 had their licenses revoked.

Some advocates feel that civil penalties like those may not be enough.

"Sometimes a slap on the hands is not enough to make them reform their practices," Carolyn Coffey, co-author of a 2008 report analyzing debt collector's abuse of the court system. "If they have to pay a fine, sometimes they see that as the cost of doing business, a criminal charge, that's something different."

But few of the business owners who have for years flouted pre-existing laws have ever faced criminal charges and few ever will, advocates say.

Tyler said that he knows of only one person who's ever been convicted on related criminal charges – William Singler, the owner of Long Island-based American Legal Process. Singler pled guilty in January to a charge of "scheme to defraud" for failing to provide proper legal notice to thousands of New Yorkers facing primarily debt-related lawsuits.

The New York Attorney General's office, which prosecuted Sigler, is prosecuting another process server on similar grounds; and the office has already garnered criminal convictions against 10 bad collectors. But a spokesman said criminal charges are not their primary tools of enforcement.
DCA aggressively pursues criminal charges against fraudulent debt collectors, by referring the offending businesses to the district attorney's office, Commissioner Jonathan Mintz said during a press conference held Monday to announce the latest policy change. "It's up to the DA's office after that," Mintz said.

The Manhattan district attorney's office arraigned 52 people on scheme-to-defraud charges in 2009, but a spokesperson for the office said it's unclear how many of those arraigned were debt collectors. Additionally, DCA doesn't track the number of cases it refers to the DA's office.

"I haven't seen any major indictments coming down, or any press conferences," held about it by the district attorney, Coffey said. "I'm guessing that it's below their radar."

One reason so few process severs face criminal charges is that, under the old law, it was too time consuming and complicated to prove a pattern of fraud, advocates say. To prove that a process server consistently failed to serve, an investigator would need to utilize a special computer program or a team of other investigators to analyze thousands of pages of documents, including some documents that he or she couldn't access without a subpoena.

"I'm pretty convinced that you could have the whole freshman class at Pace Law School, Brooklyn Law School and NYU Law School trying to catch process servers in fraud and everyone would come out saying, 'Wow that was a frustrating experience,' " Tyler said.

There is no consensus that bad debt collectors should be criminally charged.

"I don't necessarily see that the best way to go about pursing these cases is in the criminal arena," said Janet Ray Kalson, chair of the civil court committee of the New York City Bar association. "I think it's better in the civil arena because the standard of proof" there is lower.

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New York City Process Serving Legislative Updates

In response to the blatant failure to serve on the part of a number of New York Process Servers, the New York City council has passed a new legislation further regulating the process serving industry. 

The entire contents of the bill are included, but can be summarized as: 

• Independent process servers must obtain a $10,000 surety bond or put up $1000 towards the non-refundable fund for fines and legislative judgements.  
• Process serving companies must obtain a $100,000 surety bond with the city to guarantee compliance. 
• Log all service attempts with an electronic GPS system.
• Maintain records and electronic service logs for seven years.
• Provide a statement of employee rights and employer responsibilities to every process server and maintain records of receipt. 
• Individuals wishing to serve process must pass a test at the time of application for their license. 

The bill follows in it's entirety: 

The New York City Council 

Legislation Text

By Council Members Garodnick, Brewer, Gonzalez, James, Koslowitz, Lappin, Palma, Seabrook, Vallone, Barron, Mendez, White, Jackson, Lander, Williams, Sanders Jr., Levin and Vann

A Local Law to amend the administrative code of the city of New York, in relation to process servers. Be it enacted by the Council as follows:

Section 1. Section 20-403 of the administrative code of the city of New York is amended to read as

follows:

• a. Process server license. It shall be unlawful for any person to do business as, be employed as or perform the services of a process server without a license therefor.
• b. Process serving agency license. It shall be unlawful for any process serving agency to assign or distribute process to individual process servers for actual service in the city of New York without a license therefore.

§2. Section 20-404 of the administrative code of the city of New York is amended to read as follows:

• a. A process server is a person engaged in the business of serving or one who purports to serve or one who serves personally or by substituted service upon any person, corporation, governmental or political subdivision or agency, a summons, subpoena, notice, citation or other process, directing an appearance or response to a legal action, legal proceeding or administrative proceedings.
• b. A process serving agency is any person, firm, partnership, association or corporation, other than an attorney or law firm located in this state, or city marshal, who maintains an office, bureau or agency, the purpose of which is to assign or distribute process to individual process servers for actual service in the city of New York.

[b.] c. For the purposes of this subchapter the service of five or more process in any one year shall be deemed to constitute doing business as a process server.

§3. Section 20-406 of the administrative code of the city of New York is amended by adding a new subdivision c to read as follows:

• c. Each such applicant for a process server license or renewal thereof shall be required to pass an examination satisfactorily. Such examination shall be under the supervision of the commissioner and shall test the knowledge of the applicant concerning proper service of process within the city of New York and familiarity with relevant laws and rules.

§4. Subchapter 23 of chapter 2 of title 20 of the administrative code of the city of New York is amended

by adding new sections, 20-406.1, 20-406.2, 20-406.3 and 20-406.4 to read as follows:

20-406.1 Bond required. 

• a. As a condition of the issuance of a process server license, each applicant for such license or a renewal thereof shall furnish to the commissioner a surety bond executed by the applicant in the sum of ten thousand dollars, payable to the city of New York, and a surety approved by the commissioner. Such bond shall be conditioned upon the applicant's compliance with the provisions of this subchapter and any rules promulgated thereunder, and upon the further condition that the applicant will pay (i) to the city any fine, penalty or other obligation the city imposes relating to a violation of this subchapter and any rules promulgated thereunder, and (ii) to a plaintiff any final judgment recovered in an action arising out of the violation of any of the provisions of this subchapter within thirty days of its imposition. If an applicant is unable to obtain a surety bond as required by this section, and upon the provision of proof satisfactory to the commissioner of such inability, the individual applicant may, in lieu of furnishing such bond, deposit an amount of no less than one thousand dollars in a fund to be established by the commissioner to pay 
• (i) to the city any fine, penalty or other obligation the city imposes relating to a violation of this subchapter and any rules promulgated thereunder, and 
• (ii) to a plaintiff any final judgment recovered in an action arising out of the violation of any of the provisions of this subchapter within thirty days of its imposition.
• b. A process server licensed under this subchapter who engages in the business of serving process exclusively as an employee of a process serving agency licensed under this subchapter shall not be required to furnish a surety bond.
• c. As a condition of the issuance of a process serving agency license, each applicant for such license or a renewal thereof shall furnish to the commissioner a surety bond in the sum of one hundred thousand dollars executed by the applicant payable to the city of New York, and a surety approved by the commissioner. Such bond shall be conditioned upon the applicant's compliance with the provisions of this subchapter and any rules promulgated thereunder, and upon the further condition that the applicant will pay 
• (i) to the city any fine, penalty or other obligation the city imposes relating to a violation of this subchapter and any rules promulgated thereunder, and
•  (ii) to a plaintiff any final judgment recovered in an action arising out of the violation of any of the provisions of this subchapter within thirty days of its imposition.

§20-406.2 Responsibilities of process serving agencies. Every process serving agency licensed under

this subchapter shall:

• a. Comply with all applicable state and federal laws;
• b. Be legally responsible for any failure to act in accordance with the laws and rules governing service of process by each process server to whom it has distributed, assigned or delivered process for service;
• c. Provide to each process server employed by such agency a written statement indicating the rights of such employee and the obligations of the process serving agency under city, state and federal law. Such statement of rights and obligations shall include, but not be limited to, a general description of employee rights and employer obligations pursuant to laws regarding minimum wage, overtime and hours of work, record keeping, social security payments, unemployment insurance coverage, disability insurance coverage and workers' compensation;
• d. Keep on file in its principal place of business for a period of three (3) years a statement for each employee, signed by such employee, indicating that the employee read and understood the statement of rightsand obligations such employee received pursuant to subdivision (c) of this section.

§20-406.3 Records, Audits.

•  a. Every process server and process serving agency licensed under this subchapter shall retain records in compliance with section 89-cc of the New York state general business law for no less than seven (7) years of each process served. Such records shall be retained in electronic form. Tampering with any such electronic records shall be prohibited.
• b. A process server licensed under this subchapter who engages in the business of serving process exclusively as an employee of a process serving agency licensed under this subchapter shall not be subject to the provisions of subdivision (a) of this section, but shall be required to comply with all other applicable laws.
• c. The commissioner may conduct audits of the information required to be kept pursuant to subdivision a) of this section in order to monitor compliance with this subchapter.

§20-406.4 Educational materials. The commissioner shall develop educational materials to be provided to all process servers and process serving agencies licensed under this subchapter. Such materials shall at a minimum identify the laws and regulations pertaining to service of process in the city of New York.

§5. Section 20-409 of the administrative code of the city of New York is amended by adding a new subdivision c to read as follows:

• c. Upon application for renewal of a license issued pursuant to this subchapter, applicants subject to subdivision (a) of section 20-406.3 of this subchapter shall certify in writing compliance with the record keeping provisions of such section.

§6. Subchapter 23 of chapter 2 of title 20 of the administrative code of the city of New York is amended by adding new sections 20-409.1 and 20-409.2 to read as follows:

§20-409.1 Violations and penalties. Any person who, after notice and hearing shall be found guilty of violating any provision of this subchapter, shall be punished in accordance with the provisions of chapter one of this title and shall be subject to a penalty of not less than seven hundred dollars nor more than one thousand dollars for each violation.

§20-409.2 Civil Cause of Action. Any person injured by the failure of a process server to act in accordance with the laws and rules governing service of process in New York state, including this subchapter and regulations promulgated thereunder, shall have a cause of action against such process server and process serving agency, which distributed or assigned process for service, in any court of competent jurisdiction for any or all of the following relief:

• a. compensatory and punitive damages, provided that punitive damages shall only be awarded in thecase of willful failure to serve process;
• b. injunctive and declaratory relief;
• c. attorneys’ fees and costs; and
• d. such other relief as a court may deem appropriate.

§20-409.3 Reporting. Twenty-four months after the local law that added this section becomes effective, the commissioner shall submit a report to the speaker of the council regarding the effectiveness of these provisions on effectuating proper service and improving oversight over the process service industry. Such report shall include, among other things, the results of audits the commissioner has completed of process servers and process serving agencies, including information regarding their compliance with the provisions of this subchapter.

§ 7. Subchapter 23 of chapter 2 of title 20 of the administrative code of the city of New York is amended by adding a new section 20-410 to read as follows:

§ 20-410 Electronic record of service. A process server licensed pursuant to this subchapter shall carry at all times during the commission of his or her licensed activities and operate at the time process is served or attempted an electronic device that uses a global positioning system, wi-fi device or other such technology as the Commissioner by rule shall prescribe to electronically establish and record the time, date, and location of service or attempted service. All records created by such electronic device shall be maintained in an electronic

database by the process server, or if such process server is acting exclusively as an employee of a process service agency, by the process service agency, for seven (7) years from the date such record is created.

§8. This local law shall take effect one hundred eighty days after enactment provided, however that the commissioner of consumer affairs shall take all actions necessary for its implementation, including the promulgation of rules, prior to such effective date and except that section 20-410 shall take effect sixty days after the adoption of rules promulgated pursuant to such section.

NYC Council to Update Process Servering Laws, Reduces "Sewer Service"

NEW YORK (WABC) -- Ulrick Chatelain, 74, of Washington Heights says all of his bank accounts were frozen, but he didn't know why. Turns out, a former landlord had sued him and won a judgment in civil court.Problem was Chatelain was never notified about the lawsuit.

New York City Council will vote on legislation on Thursday to stop so-called "sewer service" -- the deliberate failure by process servers to notify a person about a pending lawsuit.Among the new regulations, process servers will now be required to pass an exam for proper service.

Servers will also be required to use an electronic tracking device such as GPS to prove when and where a person was notified.

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Council Seeks to Crack Down on Process Servers Who Lie

In a proposal aimed at unscrupulous debt collectors, the City Council is considering legislation that would require process servers to use global positioning systems to show that they have actually visited consumers’ homes or workplaces to deliver notices of collection proceedings.

Lawmakers hope the measure will help curb a long-running practice known in legal circles as “sewer service,” which occurs when process servers fail to serve court papers on defendants but file affidavits swearing that they did so — which allows the cases to proceed.

The victims are often debtors involved in collection suits. When they fail to show up in court they are hit with default judgments, often for thousands of dollars.

The bill would require process servers in New York City to electronically record every instance in which they serve or try to serve someone, using a global positioning system that would pinpoint their exact location.

Advocates for consumers say that sewer service has grown in recent years because of the recession and an increase in the number of collection firms that buy bad debts from credit card companies for pennies on the dollar and then seek to collect them.

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