Consumer Debt in New York

    New Yorkers have high levels of consumer debt, most notably in the form of mortgages, student loans and credit card balances. Their bankruptcy rates resemble those seen nationwide, with a peak in 2005 followed by a drop in 2006 and a steady climb since then. Despite this, New York residents have better financial health than those in many other states.

    Officials view this partially as a result of state laws that work to protect consumer rights. Such state laws go beyond national ones to protect both money and assets in consumer-friendly ways. For example, one law dictates which money debt collectors can – and cannot – reach, while another allows consumers to cancel home sales if the circumstances are unfair.

    Other experts suggest that some statewide trends, such as lower rates of consumer fraud and identity theft, are simply the cause of the wary nature of New Yorkers. Whatever is prompting New Yorkers’ fiscal health, it’s working. New Yorkers consistently keep their credit scores high by making consistent and timely payments on their debts and loans.

    Credit Card Debt in New York

    New Yorkers consistently have lower credit card debt than other Americans. In 2010, when the average American carried more than $7,300 on their cards, New Yorkers only had $6,600.

    Over the following year-long period, both New Yorkers and Americans as a whole reduced their credit card debt by about 11 percent. Toward the end of 2011, New Yorkers had an average credit card debt amount of $5,900. The rest of the country was just catching up to New York’s previous amount; all Americans then had an average of $6,600 in card debt.

    Consumer Debt in New York

    Fast Fact:

    The average New Yorker has an auto loan debt of $ 2,700, which is well below the national average.

    As with consumers nationwide, those in New York are faced with plenty of personal debt aside from unpaid credit card balances. New Yorkers’ primary type of debt is mortgage debt, but residents also carry student loans as well as auto loans.

    Overwhelming levels of debt cause some New Yorkers to resort to bankruptcy. This option, while not ideal, can help consumers erase debts and achieve a fresh financial start.

    Consolidating Debt

    In New York, there are laws specifically tailored to debt consolidation. If you are using a third-party company for debt consolidation, they must be a non-profit corporation or an attorney. Also, be aware that New York state law prohibits paying in advance for debt consolidation services.

    Mortgage Debt

    The average New Yorker with a credit report has mortgage debt totaling $34,000. This is an average among every resident with a credit history rather than every resident with a mortgage.

    More telling is the fact that about one in 10 New York mortgages is at risk of foreclosure. That’s because, as of early 2012, 9.5 percent of mortgages in the state are at least 90 days delinquent, meaning mortgage payments are at least three months past due. This is more than three times the percentage of delinquencies five years earlier.

    New York’s current percentage is the third-highest in the country. New York’s mortgage delinquency rates are topped only by those of Nevada and Florida, which stand at 13.6 and 18 percent, respectively.

    Student Loan Debt

    Student loan debt accounts for almost 10 percent of all debt New Yorkers hold. It is higher than any other type of debt in the state other than mortgage debt.

    In 2010, New York residents who took out student loans graduated college with an average debt of more than $26,000. This was 11.2 percent higher than the national average amount of student loans. It was also significantly higher than the state’s average student loan debt just a few years earlier. New Yorkers who graduated in 2004 with debt owed about $19,000.

    In total, New Yorkers now have outstanding student loans worth at least $66.8 billion. This works out to $4,610 per capita.

    Bankruptcy

    New York bankruptcy filings follow the trend of United States filings as a whole. Bankruptcy filings in the state reached an all-time high in 2005, with 107,489 personal bankruptcies being filed. This means that for every 140 adults in the state, one bankruptcy was filed that year.
    The following year, bankruptcy rates across the country plummeted. In New York, there were 29,000 personal bankruptcy filings, just under the amount filed in 1990.

    Credit Scores in New York

    The national credit score in early 2012 was 661. This is based on the FICO scoring model, which ranges from a poor score of 300 to an excellent score of 850. With an average score of 675, New York state consumers rank better than average.

    On the city level, New York’s credit scores are consistently above average, and credit scores in individual cities are all fairly close to one another.

    New York State Laws on Consumer Debt

    New York has comparatively few state laws regarding consumer debt. In most debt-related situations, therefore, New York consumers have only federal laws to protect them. But the New York government does have some protections in place that work together with federal laws.

    Statute of Limitations

    The statute of limitations in New York is six years for any type of debt. The six-year time period is counted from when a debt repayment became due or when the debtor made the most recent payment, whichever is more recent.  If it’s been more than six years, the creditor or lender no longer has the option to sue the borrower for payment.

    Payday Loans

    Payday loans are short-term, high-interest loans and are illegal in New York state. These loans — which are typically under $500, can accrue interest at rates of 400 percent and must be repaid within one or two weeks — are meant to give the borrower enough money to make it to his or her next paycheck.

    However, the loan period is too short for any underlying financial problems to be resolved. This and the high interest rates tend to force individuals into even greater amounts of debt rather than helping them out of debt.

    Other so-called cash advance loans are just as risky but are legal in the state. Tax refund anticipation loans, for example, allow a person to borrow the amount he or she anticipates to receive from a tax refund. If the refund ends up lower than anticipated, the borrower may not have the funds to repay the loan in full.

    Exempt Income Protection Act

    New York’s Exempt Income Protection Act strengthens federal laws that dictate which accounts debt collectors can freeze and what property debt collectors can seize.

    Most of an individual’s earned income cannot be taken away. Those who receive public assistance or supplemental income and those who make $217.50 per week or less after taxes cannot have their income garnished. All others are entitled to keep 75 percent of their disposable income or 90 percent of their gross income, whichever is greater.

    Retirement benefits are typically exempt as well. Collectors cannot touch pensions, retirement savings accounts or most of the money in private retirement trusts.

    A bank account cannot be frozen if it contains less than $1,740. An account is also exempt if the balance is less than $2,625 and contains directly deposited exempt benefits such as child support or Social Security.

    These benefits are always exempt from collection action, regardless of their totals:
    • Black Lung benefits
    • Child Support
    • Public Assistance
    • Railroad Retirement benefits
    • Social Security
    • Social Security Disability
    • Spousal Maintenance
    • Supplemental Security Income
    • Unemployment Insurance
    • Veterans Benefits
    • Workers Compensation

    Some personal property is also exempt from seizure. Most household goods, personal items and work-related items, for example, cannot be seized. Additionally, a car can only be seized if its equity is greater than $4,000.

    Home Equity Theft Prevention Act

    The Home Equity Theft Prevention Act regulates the sale of homes that are in foreclosure or default. It helps ensure that the seller receives a fair price from a legitimate buyer.

    The law applies in two basic situations. First, it applies when a home is in default and the sale contract includes a “buyback” agreement. This type of agreement allows the original seller to buy the home back at a certain date. The buyer only profits if the original owner chooses not to repurchase the home or cannot afford to do so. Because of this, buyback options tend to favor the purchaser, and the New York state government urges homeowners to avoid this type of contract.

    Second, the law applies when a home is in foreclosure and the buyer is purchasing the home as an investment rather than his or her primary residence.

    The law does NOT apply when a home is in foreclosure and any of these criteria are met:
    • The buyer intends to use the home as a primary residence and does so after the sale.
    • The buyer is a public housing agency or a nonprofit housing organization.
    • The buyer is the seller’s immediate relative or an immediate relative of the seller’s spouse.
    • The home is sold in a court-ordered foreclosure auction.
    • The home is resold after the sale that occurred during foreclosure or default, and the new buyer has no knowledge of any fraud on behalf of the original buyer.

    After the sale is completed and all paperwork is completed, the seller has five business days to change his or her mind and notify the buyer that he or she is canceling the contract. After this period, the contract still may be canceled if the buyer has been dishonest or unfair.

    A buyer cannot deceive or mislead the seller regarding any of the following information:
    • The home’s value.
    • The amount of money the seller will receive from the sale.
    • The terms of the contract or the contents of documents the seller signs.
    • The timeline of the foreclosure process.
    • The seller’s rights and responsibilities throughout every step of the sale.

    If a sale is covered by the Home Equity Theft Prevention Act and the buyer breaks any laws during the sale process, the seller may be able to void or cancel the contract, even after the terms of the contract have been executed. Additionally, the seller may be able to sue the buyer for damages.

    Consumer Fraud and Identity Theft

    Identity theft, a form of consumer fraud, is the fastest-growing financial crime in the country, and New York is not immune to the issue. There were 16,500 identity thefts in the state in 2010, a figure that works out to 92.3 thefts per 100,000 residents. This ranked the state eighth for per-capita thefts.

    The state ranked much lower for consumer fraud overall, which includes issues such as false advertising, scams and unfair terms. In 2010, New York had 52,000 fraud complaints. That’s equivalent to 269 per 100,000 residents, ranking it 38th.

    Startling to experts, however, is the fact that New York City has lower rates than most metropolitan areas for both fraud and identity theft. A 2010 study by the Federal Trade Commission ranked 384 U.S. cities by the number of identity theft complaints per capita.

    The New York City metropolitan area ranked 74th for identity theft, with 109 complaints per 100,000 people. This was less than half the number for the Brownsville/Harlingen, Texas area, which was the top city, with 262 complaints per 100,000 people.

    The city ranked even lower for fraud. It had 276 fraud complaints per 100,000 people, ranking it 327th on the list of 384 cities. Dunn, North Carolina, ranked first, with 740 complaints per 100,000 residents.

    When faced with these statistics, experts suggested the lower rate may be a result of New Yorkers’ vigilance but could not give a concrete reason for the findings. According to the regional commissioner for the Federal Trade Commission, “New Yorkers are smarter and more cynical than most; that’s the only explanation I can give you.”

    New York state laws go further than federal ones to protect New Yorkers from having their identities stolen. One state law bans schools from printing students’ Social Security numbers on identification cards, lists of grades, class rosters or student directories. A similar state law applies to libraries. School and public libraries can only disclose patron records for internal operational purposes, in compliance with a subpoena or court order, or upon the patron’s request or consent.

    Bill Fay

    Bill Fay is a journalism veteran with a nearly four-decade career in reporting and writing for daily newspapers, magazines and public officials. His focus at Debt.org is on frugal living, veterans' finances, retirement and tax advice. Bill can be reached at bfay@debt.org.

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