New York State Enacts Rights Of Action For Coerced Debt Claims

On December 19, the governor of New York signed into law an act to amend the general business law, establishing a right of action for claims arising out of coerced debts. The legislation defines “coerced debt” as debt incurred through economic abuse — including fraud, duress or manipulation, and sets out clear procedures for debtors to dispute such debts.

Under the law, when a debtor submits both adequate documentation and a statement asserting a debt is coerced, the creditor must: (i) cease collection activities until a review is completed; (ii) notify consumer reporting agencies of the dispute within ten business days; and (iii) complete a review within thirty business days. If the creditor resumes collection activities, they must provide the debtor with written notice of their determination and the good faith basis for it, along with supporting documents that exclude personally identifiable information.

The Act also creates civil liability for individuals causing coerced debt and provides debtors with a cause of action and an affirmative defense under § 604-cc, enabling them to challenge coerced debts in court and seek declaratory and injunctive relief, as well as the deletion of adverse information from consumer reporting agencies. The statute will go into effect ninety days after becoming law.