NYC Rules Upheld for Debt-Collecting Lawyers

     ALBANY, N.Y. (CN) – A New York City law intended to prevent law firms that also work as debt collectors from engaging in abusive practices does not infringe on the state’s authority to regulate the legal profession, the Second Circuit Court of Appeals ruled.
     The ruling announced Wednesday is the second the court has issued affirming New York City’s Local Law 15, which adds certain law firms to the list of entities regulated as debt collectors.
     The case had been bandied about various federal courts in New York, but today’s ruling seems to put the issue to bed from the Second Circuit’s perspective.
     Two law firms, Eric M. Berman PC and Lacy Katzen LLP, sued the city over debt collection regulation, arguing it encroached on the state’s authority to regulate lawyers.
     The law was adopted in 2009 and added asset buyers and law firms that also act as debt collectors to the list of entities regulated by the city. However, it excluded attorneys and law firms that collect debt on behalf of clients through litigation.
     The law requires regulated firms to provide debtors with call-back numbers and other information, and mandates a fine of up to $100 for violations.
     A federal judge sided with the law firms in 2012, but in 2014 the Second Circuit ruled the law didn’t appear to regulate attorneys collecting debts. Nevertheless, it asked the New York State Court of Appeals to weigh in on whether Local Law 15 violated the state’s authority to regulate lawyers or New York City’s charter, which designated the Department of Consumer Affairs as the go-to agency to license debt collectors.
     On June 30 the Court of Appeals ruled the law did not violate the state’s authority, and was “complementary and compatible with” current judiciary laws regulating attorneys.
     In a dissenting opinion Judge Eugene Fahey said many lawyers have to call consumers for debt-collection purposes, often on a daily basis, and called the distinction in Local Law 15 between a lawyer acting as a debt collector and a lawyer collecting debt via litigation “a distinction without a difference.”
     The court declined to determine whether the law violated the city’s charter and asked the Second Circuit to once again review the case. In doing so, however, the Court of Appeals stated that “the city should not be prevented from taking permissible steps to curb abusive debt collection practices.”
     With the proverbial ball back in its court, the Second Circuit on Wednesday held that “given ‘the absence of’ a ‘conflict between Local Law 15 and [New York State’s] authority to regulate attorneys’ … the licensing provisions of Local law 15 do not usurp the state’s authority to license the practice of law.”
     The case is now remanded back to district court to decide the matter of whether Local Law 15’s regulation of attorney conduct is “unconstitutionally vague,” the final unanswered argument raised by the law firm plaintiffs.
     Fair debt collection lawsuits by aggrieved consumers complaining of midnight calls and at-work harassment are nothing new, and New York City has regulated collection agencies since 1984.
     Local Law 15 was designed, attorneys for the city argued, to tackle a growing niche industry of law firms performing collection duties, some of which may use such high-pressure tactics.

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