City lawmakers heard directly from some of the costumed characters who could face regulation if a bill is passed limiting the locations where they can take pictures for tips.
The characters gave testimony at a hearing on legislation that would create specific zones for them in pedestrian plazas including Times Square.
Supporters on both sides of the issue also rallied outside City Hall.
Those in favor of the bill say it will protect the tourism industry, but people against it argue it violates their rights.
"Times Square is the image maker and the economic driver of New York City, and there are billions and billions of negative impressions because lots of people are having negative experiences," said Tim Tompkins, president of the Times Square Alliance.
"We are protected by First Amendment rights," said one costumed character. "We have a right to walk around New York City. Not just Times Square, anywhere in the city, with whatever costume we want to wear."
Police say there have been 16 arrests connected to these characters in Times Square this year.
If the bill does pass, the new rules would start by the summer.