Maria Vullo, Superintendent of the New York State Department of Financial Services Rick Kopstein/NYLJ

A settlement between the state and a payday loan debt collector and payday loan servicer has resulted in nearly $12 million in loan forgiveness to thousands of New York consumers, the Department of Financial Services announced Monday.

The department entered into a consent order with Total Account Recovery (TAR), the debt collector, and E-Finance Call Center Support, the servicer. As part of the settlement, Total Account Recovery and E-Finance will stop activity in New York and Total Account Recovery will discharge roughly $11.8 million in payday loan debts from New York consumers. Total Account Recovery also must discharge all debt connected with New York payday loans that it currently holds, vacate any judgment on New Yorkers’ payday loan account and remove any pending garnishments, liens, levies or restraining notices related to any judgments on New Yorkers’ payday loan accounts. E-Finance also must disclose any pending New York account and stop any communication with customers in the state related to those accounts.

Total Account Recovery ceased collecting payday loan debt from New York consumers around July 2014, according to the consent order. In December 2015, both Total Account Recovery and E-Finance ceased all operations relating to payday loan servicing and debt collection, the companies told the department.

Payday loans, which are typically short-term, small-dollar loans against a borrower’s next paycheck, are illegal in New York. Superintendent Maria Vullo said in a statement that the agency wouldn’t “tolerate predatory actors” in New York.

“Debt collectors, like TAR, who collect or attempt to collect outstanding payments from New Yorkers on payday loans violate debt collection laws, and will be met with swift action,” she said. “A payday loan servicer like E-Finance makes unlawful misrepresentations to New Yorkers when it sends notices of payments due and negotiates payment agreements with New York consumers for payday loan payments that are not legally owed under New York law.”

Both organizations were ordered to pay $45,000 in a civil penalty and are responsible for paying up to $15,000 to mail notice letters to affected individuals. The consent order said the respondents are being represented by Daniel Horwitz of McLaughlin & Stern, who specializes in white-collar defense and investigation practices. Horwitz did not immediately respond to request for comment and efforts to reach either company were unsuccessful.

According to the department’s investigation, which covered the period from 2011 through 2014, Total Account Recovery engaged in “unlawful debt collection practices” when it tried to collect on roughly 20,000 New York consumers’ payday loans. In complaints filed to the Department of Financial Services, consumers claimed that Total Account Recovery “harassed them in seeking to collect on illegal payday loan debts and repeatedly called them at work,” the consent order claims. The company collected on 2,119 of the 20,000 payday loans between 2011 and 2014. E-Finance is accused of similar activities.

“DFS will continue to take aggressive action to protect New Yorkers and send a clear message to those who attempt to profit from illegal payday loan activity,” Vullo said.