A settlement with the operator of five Buffalo-area debt collection companies announced on November 21, 2013, by New York Attorney General Eric T. Schneiderman marks the latest chapter in the Attorney General's targeting of collectors of payday loans. Among other things, the settlement requires payment of $165,000 in restitution and civil penalties.

The Attorney General alleged that the principal and his five debt collection companies violated the federal Fair Debt Collection Practices Act (FDCPA) by sending verification forms to debtors' employers and correspondence to debtors using the name of an attorney who was not directly involved in the collection efforts.

Most notably, the Attorney General charged that the alleged FDCPA violations were committed in connection with the collection of illegal payday loans. The Attorney General and New York Department of Financial Services (DFS) have consistently enforced the civil usury cap of 16 percent against Internet and out-of-state lenders lending money to New York residents.

This past September, Mr. Schneiderman announced a settlement exceeding $3.2 million against five New York-based debt collectors that collect payday loans. (For more information on that settlement, see our legal alert.) The DFS and the New York City Department of City Affairs have also increased regulatory scrutiny over the debt collection industry.

As a result, debt collectors collecting debts from New York residents must be extremely vigilant regarding their business relationships with payday lenders. Involvement with a payday lender making loans to New York residents is a red flag that could invite enforcement action from the New York Attorney General or DFS and carry significant monetary and non-monetary penalties.