BILL ANALYSIS                                                                                                                                                                                                    






                           SENATE JUDICIARY COMMITTEE
                         Senator Joseph L. Dunn, Chair
                           2005-2006 Regular Session


          AB 2781                                                A
          Assembly Member Leno                                   B
          As Amended June 22, 2006
          Hearing Date:  June 27, 2006                           2
          Family Code                                            7
          GMO:rm                                                 8
                                                                 1

                                     SUBJECT
                                         
                        Private Child Support Collectors


                                   DESCRIPTION  

          This bill would require private child support collectors  
          (PCSCs), as defined, to comply with some basic consumer  
          protections to ensure that child support obligees have  
          clear information about the contract they are entering  
          into, have some basic rights to cancel the contract,  
          receive meaningful notice of collections made and the  
          amount of the collections kept by the private agency as its  
          fee, require PCSCs to follow the debt collection practices  
          that apply to collectors of other types of consumer debt,  
          and provide remedies when PCSCs do not comply with these  
          requirements. 

                                    BACKGROUND  

          In California and elsewhere, a burgeoning industry of  
          private child support collectors (PCSCs) has developed,  
          largely because governmental entities that collect child  
          support debt is continually hampered by budget and  
          personnel constraints.  These PCSCs promise faster or more  
          complete results than the local child support agency can  
          provide.  When these companies contract with child support  
          obligees, they have the obligees assign their rights to  
          arrearages and future support payments to the companies for  
          collection.  In return, the companies pay any collected  
          amounts to the obligees, after subtracting their collection  
                                                                 
          (more)



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          fees.

          As the private child support collection business has grown,  
          complaints about private collectors have increased as well,  
          alleging excessive fees, false and deceptive advertising,  
          and failure to disclose important rights forfeited by child  
          support obligees when they assign these debts to private  
          companies.  

          In 2003, SB 339 (Alpert) was introduced to address these  
          complaints by regulating aspects of the private child  
          support collection business. Among other things, the bill  
          sought to protect obligees and obligors in the following  
          manner:  1) capping the amount of child support collections  
          PCSCs could retain as their own fee; 2) defining the type  
          of collections from which fees could be retained; 3)  
          requiring specified disclosures in advertisements and  
          solicitations; 4) setting forth provisions that must be  
          included in contracts; 5) defining the opportunities for  
          obligees to cancel a contract; 6) subjecting PCSCs to the  
          Rosenthal Fair Debt Collection Practices Act; 7) ensuring  
          that PCSCs could not take a percentage of collections  
          attributable to actions of the government child support  
          entity; 8) requiring PCSCs to send specified notices to the  
          support obligee, obligor, and the local child support  
          agency; and 9) prohibiting the PCSC from misrepresenting  
          itself, its rights, or the responsibilities of the obligor  
          or others to pay past due child support.  SB 339 was vetoed  
          by the Governor, whose message was:

             While I support ensuring parents are not taken  
             advantage of in securing child support payments, this  
             bill will have the effect of severely limiting a  
             consumer's choice to go to a private collection  
             agency when government efforts to collect the owed  
             child support falter. ?I welcome many of the  
             provisions in this bill that would ensure families  
             are protected when they choose to contract with a  
             private agency; however the provisions such as  
             capping the amount a collection agency can charge and  
             prohibiting a person from contracting with a private  
             collection agency when they have received partial  
             payment in the last six months are particularly  
             onerous to the industry and to parents seeking  
             choices.
                                                                       




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          Last year, SB 896 (Runner, 2005) was introduced to once  
          again try to institute some consumer protections for  
          support obligees while attending to the Governor's veto  
          message.  That bill was sponsored by Supportkids, Inc.   
          SB 896 was heard and passed by this committee with  
          amendments.  However, it was gutted and amended by the  
          author on May 18, 2006 before it was heard in the  
          Assembly Judiciary Committee.  Many of the provisions in  
          SB 896 are now in AB 2781, as are more of the  
          protections contained in SB 339.  Thus, AB 2781 attempts  
          to bridge the difference between SB 339 and SB 896, and  
          includes some more provisions addressing issues raised  
          by other interested parties.

                                         
                            CHANGES TO EXISTING LAW
           
           1.Existing law  governs the collection of child support by  
            local child support agencies.  (Family Code Section 17000  
            et seq.) (All references are to the Family Code.)  

            This bill  would require a PCSC to meet some basic  
            consumer protections in its dealings with the support  
            obligees in contracting for the collection of past due  
            child support.  Among other things, this bill would:

              a.   Definition of PCSC:   The bill would define a PCSC  
               as a person, corporation, attorney, or other  
               nongovernmental entity who is engaged by an obligee to  
               collect court-ordered child support for a fee or other  
               consideration.  A PCSC does not include attorneys who  
               deal with ongoing child support issues in the course  
               of representing a client in a family law matter.  A  
               PCSC does include a private nongovernmental attorney  
               whose business is substantially (at least 50% of time  
               spent or remuneration received) comprised of child  
               support collections. [Proposed Sec. 5610(a).]
              
             b.   Written contract requirements:   The bill would  
               require contracts to be in 10-point type and disclose  
               all of the following: (1) the fees imposed by the  
               contract and an example of how they are calculated;  
               (2) the amount of fees to be charged set by the agency  
               and not set by state law; (3) the PCSC cannot charge  
                                                                       




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               fees on current support if the obligee received any  
               current child support during the six months preceding  
               the contract with the PCSC; (4) the nature of services  
               to be provided; (5) the expected duration of the  
               contract; (6) how the contract may be canceled; (7)  
               the address and other access information for the PCSC;  
               (8) that the PCSC is not a government entity, and  
               government child support agencies in California  
               provide services free of charge; (9) the PCSC collects  
               only money owed to the obligee and not support  
               assigned to the state or county due to the receipt of  
               CalWORKs or Temporary Aid to Needy Families (TANF);  
               (10) the PCSC will not take a fee from collections  
               that are primarily attributable to the actions of a  
               government entity or another and the PCSC is required  
               by law to refund any fees improperly retained; (11)  
               that the obligee may seek, or continue to use the  
               services of a government child support agency and the  
               PCSC will not require or request that the obligee  
               cease or refrain from engaging in those services; and  
               (12) the PCSC is required to keep and maintain case  
               records for four years and four months after the  
               expiration of the contract and prior to destruction or  
               disposal of those records the obligee may retrieve  
               portions of the records that are not confidential.

                This bill  also would provide the form of a statement  
               on the first page of the contract that details items  
               that the obligee understands and agrees to with  
               respect to the contract, including that the money to  
               be collected is owed to the obligee and not to the  
               state or county, that the child support to be  
               collected is not assigned to the state or county, and  
               that the obligee would inform the PCSC if the obligee  
               applies for benefits under CalWORKS or TANF.

                This bill  also would specify the form statement to be  
               placed immediately above the signature line on the  
               contract that details items that the obligee  
               understands and agrees to with respect to the  
               contract, including that the PCSC would charge a fee  
               for all current child support and arrears until the  
               entire amount is collected, that it could take years  
               for the collection, and if payment is colleced through  
               wage garnishment, that the amount received from the  
                                                                       




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               PCSC will not be the full amount of any periodic  
               court-ordered child support payment until the contract  
               terminates since PCSC fees are collected from the  
               periodic payments. (See Comment 3a.)

              c.   Notice of cancellation form:  This bill would  
               require the PCSC to include a notice of cancellation  
               form with the contract to ensure that obligees  
               understand their rights to cancel and have an easy  
               form to accomplish this task.  The notice (provided  
               verbatim in the bill) must be in the same size font as  
               the contract, and written in the same language.

              d.   Right to cancel a contract; termination of  
               contract:  The bill would provide that the obligee has  
               the right to cancel a contract within 15 business days  
               of execution of the contract, or at the end of any  
               12-month period in which the amount of the child  
               support collected is less than 50% of the amount  
               scheduled to be paid under a payment plan, or at any  
               time if the PCSC commits a material breach of any  
               provision of the contract or a material violation of  
               any provision of the statute; that the contract  
               terminates automatically when the term expires or the  
               contracted amount is collected. (See Comment 3d.)

              e.   Effect of assignment to PCSC:   This bill would  
               provide that an assignment to a PCSC is a voluntary  
               assignment for purposes of bankruptcy.

              f.   No fees for current support and refund of  
               improperly retained fees:   This bill would provide  
               that a PCSC shall not charge fees on current support  
               if the obligee received any current child support  
               during the six months preceding execution of the  
               contract with the PCSC; and require a PCSC that  
               improperly retains fees from collections that are  
               primarily attributable to actions of a governmental  
               entity to refund all of those fees immediately upon  
               discovery or notice of the improper retention of fees.  
               [Proposed 5610 c (5).] (See Comment 3a.)

              g.   Information to be given to obligee:   This bill  
               would require the PCSC to provide all of the following  
               information: (1) the amount of each collection, and  
                                                                       




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               the date it was received by the PCSC and sent by the  
               PCSC to the obligee; (2) the amount of payment sent to  
               the obligee and the amount and percentage of each  
               payment kept by the PCSC as its fee; (3) the name of  
               and other identifying information relating to any  
               obligor who made child support payments collected by  
               the PCSC; (4) the source of the payment and the  
               actions taken by the PCSC that resulted in the  
               payment.  If this information is provided by telephone  
               or internet access, it shall be up to date.  If  
               written, it shall be sent at least quarterly, and if  
               provided by other means, the information shall be  
               updated and made available at least monthly. [Proposed  
               Sec. 5610(d).]

              h.   Direct deposit account:  This bill would require a  
               PCSC to establish a direct deposit account with the  
               state disbursement unit and within two business days  
               of the date of disbursement notify the The Department  
               of Child Support Services (DCSS) of the portion of  
               each collection that constitutes a fee.  The notice to  
               DCSS shall be in electronic format. [Proposed Sec.  
               5610(d)(3).]
              
             i.   Recordkeeping:  This bill would require the PCSC to  
               retain records for the duration of the contract plus a  
               period of four years and four months from the date of  
               the last child support payment collected by the PCSC  
               for the obligee.  In addition to the information  
               required to be provided to the obligee (see paragraph  
               g above) the PCSC would be required to maintain  
               specified information such as a copy of the child  
               support order; all correspondence between the PCSC and  
               the obligee or obligor; and other pertinent  
               information.  The PCSC would be required to safeguard  
               the information to prevent accidental disclosure of  
               confidential information pertaining to the obligee or  
               obligor and to allow access to nonconfidential  
               portions of the information to obligees and obligors. 
              
          1.Debt collection practices
           
             Existing law  , the Rosenthal Fair Debt Collection  
            Practices Act, prohibits debt collectors from engaging in  
            a variety of practices in collecting consumer debt.   
                                                                       




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            Among the practices prohibited are the following:

             a.   Communicating with the debtor with such frequency  
               as to be unreasonable and to constitute harassment to  
               the debtor.

             b.   Communicating to any person any list of debtors  
               which discloses the nature or existence of a consumer  
               debt, commonly known as "deadbeat lists."

             c.   Communicating with the debtor by means of a written  
               communication that displays or conveys any information  
               about the consumer debt or the debtor which is  
               intended both to be seen by any other person and also  
               to embarrass the debtor.

             d.   Making a false representation that any person is an  
               attorney.

             e.   Representing that any debt collector is vouched  
               for, bonded by, affiliated with, or is an  
               instrumentality, agent or official of the government.

             f.   Communicating directly with a debtor who is  
               represented by an attorney with respect to the  
               consumer debt.

             g.   Sending a communication which simulates legal or  
               judicial process. (Civil Code Section 1788.10 -  
               1788.16.)

             Existing law  defines its applicability to the collection  
            practices of consumer debt.  Child support debt is not  
            included in that definition.  (Civil Code Section  
            1788.2.)

             This bill  would prohibit a PCSC from engaging in debt  
            collection practices that are prohibited by the Rosenthal  
            Fair Debt Collection Practices Act. 

             This bill  would prohibit a PCSC from misstating the  
            amount of the fee that may be lawfully paid to the PCSC  
            or the identity of the person who is obligated to pay the  
            fee.

                                                                       




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             This bill  would prohibit a PCSC from making a false  
            representation of the amount of child support to be  
            collected, or ask any party other than the obligor to pay  
            the child support obligation, unless that party is  
            legally responsible for the debt or is the legal  
            representative of the obligor.  The PCSC is not in  
            violation of this prohibition if it reasonably relies on  
            information provided by the government entity, a court  
            order, the obligee, or the obligor as to the amount of  
            the obligation due and owing.

             This bill  would prohibit a PCSC from requiring, as a  
            condition of providing services to the obligee, that the  
            obligee waive any existing right or procedure  to pursue  
            a civil action, or that the obligee agree to resolve  
            disputes in a jurisdiction other than California or to  
            the application of laws other than those of California.   
            Any waiver must be knowing, voluntary and not made a  
            condition of doing business with the PCSC.  Any waiver,  
            including an agreement to arbitrate or to choice of  
            forum, shall be deemed unconscionable, involuntary,  
            against public policy, and unenforceable.

           1.Remedies
             
             Existing law  authorizes the following remedies for  
            violation of the Rosenthal Fair Debt Collection Practices  
            Act:

            Accordingly, this bill would provide similar remedies to  
            the obligee or the obligor, as modified:

             a.   It would permit an action for actual damages  
               resulting from a violation.

             b.   In addition, a PCSC would be liable for a civil  
               penalty of no less than $100 nor more than $1,000 if  
               the PCSC willfully and knowingly violates the  
               provisions of the Act.

             c.   Costs would be awarded to the prevailing party.  
               Reasonable attorney's fees based on the time  
               necessarily expended to enforce the liability may be  
               awarded to a prevailing party, other than the PCSC,  
               asserting rights.  Reasonable attorney's fees may be  
                                                                       




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               awarded to a prevailing PCSC if the court finds that  
               the party bringing the action did not prosecute the  
               action in good faith. 

             d.   In an action by an obligor, the PCSC shall have no  
               civil liability to the obligor under any circumstance  
               in which a debt collector would not have any liability  
               under Sec. 1788.30 of the Civil Code.

             e.   A PCSC would not be in violation of this Act if the  
               PCSC shows by preponderance of the evidence that the  
               action complained of was unintentional and resulted  
               from a bona fide error that occurred notwithstanding  
               reasonable procedures to avoid the error.

             f.   These remedies are cumulative and in addition to  
               other remedies, rights, or procedures available under  
               any law.

          4.    Other provisions

             a.    Obligor to pay half the PCSC fee and other costs  
            ordered by court  
           
               This bill  would provide that every child support order  
               issued on or after January 1, 2008 and every child  
               support agreement approved by a court on or after  
               January 1, 2008 shall include a separate money  
               judgment owed by the child support obligor to pay  
               one-half of the fee charged by a PCSC pursuant to a  
               contract compliant with this Act and any other child  
               support collections costs expressly permitted by the  
               child support order.  

                This bill  would provide that the money judgment  
               described above shall be in favor of the PCSC and the  
               child support obligee, jointly, and that the PCSC may  
               enforce the obligation to pay the fee by any means  
               available to the obligee for the enforcement of the  
               child support order without any additional action or  
               order by the court.  Any fee (as well as any other  
               fees and costs ordered by the court) thus collected  
               from the obligor by the PCSC pursuant to a compliant  
               contract would not constitute child support.

                                                                       




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                This bill  would not grant the PCSC any enforcement  
               remedies beyond those authorized by federal or state  
               law.

                This bill  would require the PCSC, if the court order  
               includes other fees and costs by the obligor, to  
               provide the obligor written notice, no later than five  
               days after the PCSC makes the first collection, of the  
               following: (1) the amount of arrearages subject to  
               collection; (2) the amount of the collection that will  
               be applied to the arrearage; and (3) the amount of the  
               collection that will be applied to the fees and costs  
               of collection.  The PCSC would be required to include  
               notice that the obligor has 30 days to file a motion  
               to contest the amount of the collection fees and costs  
               assessed against the obligor and the amount of the  
               arrearages subject to collection.

            b.    Attorneys acting as PCSCs  
           
               This bill  would require an attorney acting as a PCSC  
               to conform to statutes, rules and case law governing  
               attorney conduct, including the right of the client to  
               cancel a contract at any time.

                This bill  would allow the attorney to pursue normal  
               remedies, including reasonable payment for services  
               rendered under the doctrine of quantum meruit,  
               provided those services led to the collection of  
               support. 

            c.    Lien on real property  

                This bill  would specify that any fees or monetary  
               obligations resulting from a compliant contract  
               between an obligee parent and a PCSC, or any money  
               owed to a PCSC by an obligor parent as a result of the  
               PCSC's efforts does not without further action create  
               a lien on real property nor may that amount be added  
               to any existing lien created by a recorded abstract of  
               support or be added to an obligation on any abstract  
               of judgment.

                This bill  would however not prevent the PCSC from  
               collecting fees it is owed by recording a new judgment  
                                                                       




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               lien as otherwise authorized by law.

            d.    Notice to local child support agency  

                This bill  would require the PCSC with whom an obligee  
               contracts for the collection of child support to  
               provide written notice to the local child support  
               agency then enforcing the obligee's support order, or  
               the local child support agency for the county in which  
                                                             the obligee resides, prior to commencement of  
               collection activities.  The notice shall identify the  
               obligee and the amount of the arrearage claimed by the  
               obligee.
           
                                    COMMENT
           
          1.    Need for the bill  

            AB 2781 is sponsored jointly by the Children's Advocacy  
            Institute (CAI) and the National Center for Youth Law  
            (NCYL).  In describing the need for this bill, the CAI  
            states:

               Child support is intended to provide economic  
               stability for the child.  In many cases these  
               payments significantly contribute to a family's  
               income, which protects children from the  
               devastation of poverty?When the established  
               [child support] collection process disappoints,  
               some families have turned to unregulated private  
               child support collectors.  Unfortunately, there  
               have been instances when these private child  
               support collectors have taken advantage of  
               families desperate to collect their support?This  
               bill will create a framework to protect families  
               from unscrupulous collection practices and will  
               protect children.

            The NCYL focuses more on specific unfair practices used  
            by PCSCs in contracting with obligees:

               These private child support collectors (PCSCs)  
               have emerged out of a self-stated need to assist  
               parents who have not been successful in  
               collecting child support from noncustodial  
                                                                       




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               parents.  By in[sic] large these private child  
               support collectors are unregulated in California.  
                Unsuspecting parents often get pulled into  
               perpetual contracts that end up resulting in more  
               of any collections going to the collectors than  
               children.  The fact that many parents are so  
               desperate to collect child support arrears often  
               leaves them vulnerable to some unscrupulous  
               collectors and practices.
          
           2.    Industry practices demonstrate the need to install  
            some basic consumer protections

             In a 2002 study, the U.S. General Accounting Office  
            ("GAO," now known as the Government Accountability  
            Office) identified 38 private firms in 16 states that  
            were regularly engaged in the business of collecting  
            child support.  (GAO 02-349, Child Support Enforcement:  
            Clear Guidance Would Help Ensure Proper Access to  
            Information and Use of Wage Withholding by Private Firms,  
            March 2002.)  Some project that since the GAO report was  
            issued, the industry has grown considerably in size.   
            (Center for Law and Social Policy [CLASP], Private Child  
            Support Collection Agencies, April 2005.)  The growth of  
            the private child support collection industry has also  
            meant greater attention has been paid to its practices in  
            the recent past.  CLASP reports that "over the last  
            decade, an unregulated industry has grown rapidly,  
            primarily around the internet, to aggressively and  
            sometimes deceptively market child support collection  
            services."  These companies, CLASP reports, "often fail  
            to deliver any genuine services . . . and trap [support  
            obligees] in perpetual contracts."  

            The GAO and CLASP Reports note that on average, these  
            PCSCs charge custodial parents 29 percent of the support  
            that is collected, and some of the largest companies take  
            34 percent of the collection.  Additionally, many of  
            these companies charge clients an application fee,  
            averaging at about $95, and also charge clients other  
            costs or fees for taking particular enforcement actions.

            CLASP notes that the "GAO found that the main edge held  
            by private companies in enforcing support is that the  
            companies pressure relatives to pay the support owed . .  
                                                                       




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            . and use collection tactics that are prohibited to state  
            child support agencies, private attorneys, and private  
            collection agencies that pursue consumer debt."  Much of  
            CLASP's view is a result of the roughly 400 complaints  
            against PCSCs it has received and reviewed.  CLASP points  
            to four practices that it believes typify the type of  
            activity that needs regulation:  "(1) promising help with  
            back support, but instead pocketing a fee from ongoing  
            monthly support; (2) taking a cut of support collected by  
            state child support agencies; (3) demanding payments from  
            grandparents; and (4) coercing payments from  
            non-custodial parents that are not owed or authorized by  
            state law."  CLASP concludes that "the complaints reflect  
            an offensive and disturbing picture of deceptive  
            advertising, misleading contracts, fee gouging,  
            harassment and abuse, posing as the government, dunning  
            grandparents, inflating and fabricating debts,  
            undermining credit worthiness, and abusing legal  
            process."

            Case law and recent press have also illustrated the  
            prevalence of these practices.  In one instance reported  
            by Time magazine (August 29, 2002), an Arizona-based PCSC  
            collected a total of $1,100 after five months' work, took  
            $885 in fees, and left the custodial parent with the  
            remaining $215.  The Time article also reported that a  
            Texas PCSC directed obligors' employers to re-direct wage  
            garnishment payments to the PCSC, even when the PCSC  
            played no role in the garnishment.  Another troubling  
            practice alluded to by CLASP was the subject of a  
            lawsuit.  The court decision in Reno v. Supportkids, Inc.  
            (2004) U.S. Dist. Lexis 6459, described a practice where  
            the obligee, in contracting with the PCSC, indicated the  
            amount of child support due and owing was $13,589.  The  
            PCSC communicated to the obligor that he owed $120,000,  
            and filed a lien against his home in the amount of  
            $122,474.  Although the court decision centered around  
            the appropriate remedies available, this underlying fact  
            does not appear to have been contested (and the  
            defendants acknowledged the evidence that they filed a  
            lien in an inflated amount).  In fact, the court noted  
            that the defendants did not remove the lien until one and  
            one-half years after the complaint was filed.

            CLASP comments that "although there may be an appropriate  
                                                                       




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            role for private child support collection companies that  
            are committed to customer service, use legitimate  
            collection practices, and help parents obtain overdue  
            child support that they might not otherwise receive, the  
            industry currently operates without regulatory controls."

          3.    AB 2781 would remedy many of the problems encountered  
          today
           
            This bill would remedy many, though certainly not all, of  
            these concerns.  

            a.    Written contracts would spell out many consumer  
            protections  

               The most important provision in this bill is the  
               requirement that a written contract between the PCSC  
               and the obligee contain specific disclosures that  
               spell out the obligee's rights and the PCSC's  
               obligations.  These disclosures will at least help  
               obligees make fully informed decisions when entering  
               into a contract with a PCSC.  

               By ensuring that the contract explains all of the fees  
               that will be taken by the PCSC, notifying obligees  
               that government agencies provide similar services free  
               of charge, informing obligees of their right to keep  
               their cases open with government child support  
               agencies, limiting the authority of PCSCs to take as  
               their fee a share of collections that was attributable  
               to the work of others, and giving obligees the right  
               to get out of the contract if the PCSC breaches the  
               contract or violates this statute, this bill evens the  
               playing field considerably.  The bill thus gives  
               obligees more information to arm themselves with when  
               dealing with a PCSC.  

               Although AB 2781 would not limit the fees that PCSCs  
               can take, it requires disclosure so that obligees are  
               more able to determine if they are willing to pay that  
               much of their support collections to the PCSC or risk  
               that they will get less if they do not engage the  
               services of the PCSC.  

               In addition, AB 2781 contains a provision that  
                                                                       




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               requires the contract between the PCSC and the obligee  
               to state, up front, that fees are not set by state law  
               but by the PCSC and that the PCSC will not retain fees  
               from collections attributable to actions by other  
               entities and is required by law to refund those fees  
               improperly retained.

               Under this bill, the written contract must contain a  
               statement that the PCSC cannot charge fees on current  
               support if the obligee received any current child  
               support during the six months preceding execution of  
               the contract with the PCSC.  This statement in the  
               written contract is directly in conflict with the  
               prescribed form statement that the bill would require  
               placed immediately above the obligee's signature line.  
                The form statement (See lines 32, 33, and 34, page 6  
               of the bill) states:  I understand that (the PCSC)  
               will charge a fee for all the current child support  
               and arrears it collects for me?

               SHOULD THE FORM STATEMENT BE CORRECTED IN ORDER TO  
               AVOID CONFUSING THE OBLIGEE?

             b.    Updated information on collection efforts assures  
               the obligee  

               Certain provisions in the bill are designed to  
               maximize the information that an obligee would have  
               about the collection efforts at any given time.  This  
               is very important, especially because child support  
               obligees are usually dependent on the child support  
               collected, and need to know whether their PCSCs are  
               doing a good job or not or are bilking them for fees.   


               For example, information on the amount of support  
               collected, the date on which each amount received by  
               the PCSC was sent to the obligee, the source of the  
               payment and the actions taken by the PCSC to collect,  
               the amount of the fee kept by the PCSC, the name and  
               identifying information of the person who made the  
               child support payment - all of this information would  
               assuage fears of the obligee that nothing was being  
               done and, at the same time, the obligee is getting the  
               benefit of gathering information for herself (or  
                                                                       




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               himself) in the event she decides to terminate the  
               contract.

               AB 2781 would require that this information be made  
               available online, as well as by mail or telephone.   
               Online access would have to be via a secure Internet  
               website. If the information is provided by mail, it  
               would be sent quarterly, and if provided by any other  
               method, it would be updated and made available at  
               least monthly.  Information via telephone and the  
               Internet would be up to date.

            c.    PCSC and the obligor

                As to its dealings with obligors, this bill would also  
               ensure a fairer playing field.  Among other things,  
               the PCSC could not engage in the behavior described in  
               the Reno case above (see Comment 2).  AB 2781 would  
               prohibit a PCSC from making a false representation of  
               the amount of child support to be collected.  In that  
               Reno case, the PCSC had information from the obligee  
               that the maximum amount of support owed was just over  
               $13,000.  This bill would prohibit the PCSC from  
               telling the obligor that he owed more than that, and  
               would prohibit the PCSC from filing a lien against his  
               house for $122,000.  The bill would also require PCSCs  
               to comply with fair debt collection practices that  
               other consumer debt collectors are subject to,  
               protecting obligors from overzealous PCSCs that call  
               them in the middle of the night, contact their  
               relatives in an attempt to extract payment from them,  
               call their employers repeatedly, simulate legal  
               process to scare employers into redirecting payments  
               to the PCSC, or otherwise seek to harass obligors and  
               others around them into paying the child support  
               obligation.  

               Although this bill only imposes some basic consumer  
               protections, and does not purport to be the "be all  
               and end all" of regulation of this industry, it begins  
               the process of imposing consumer protections that are  
               sorely lacking.

               The bill would require, on or after January 1, 2008,  
               that all child support orders or child support  
                                                                       




          AB 2781 (Leno)
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               agreement approved by the court include a separate  
               money judgment owed by the obligor to pay half of the  
               fees charged by the PCSC. [Proposed 5610(j).]  It  
               also would make the obligor liable to the PCSC and the  
               obligee jointly for those fees, and PCSC may collect  
               those fees by any means available for the collection  
               of the support obligation.  In other words, the PCSC  
               may obtain a payment plan from the obligor for the  
               concurrent payment of those fees.  If collected, the  
               fee would not be credited towards child support.   
               Presumably then, more of the collection made on the  
               child support obligation would go to the obligee.

            d.    Obligee's right to cancel the contract

                In addition to the right to cancellation within 15  
               business days of executing the contract, AB 2781 would  
               automatically terminate contracts at the end of the  
               contract term or when the contracted amount is  
               collected.  Additionally, an obligee can terminate a  
               contract at the end of any 12-month period in which  
               total collections are less than 50 percent of the  
               collections due under a payment plan.  Lastly, an  
               obligee can, under AB 2781, cancel a contract at any  
               time the PCSC commits a material breach of any  
               provision of the contract or a material violation of  
               any provision with respect to the obligee or the  
               obligor.

               The burden on the PCSC to collect more than 50% of the  
               payment plan worked out with the obligor is not as  
               onerous as it looks.  For example, if the arrears  
               total $10,000, and the current support is $1,000 per  
               month, the PCSC must be able to collect, on a payment  
               plan of $1,200 per month arranged with the obligor, at  
               least 50% of $14,400 ($1,200 x 12).  If the PCSC  
               collected only $7,500 for the entire 12 month period  
               and charged a 1/3 of collections fee, the PCSC would  
               receive $2,500 in fees and the obligee would receive  
               $5,000 in child support.  Most obligees would probably  
               be happy with receiving the $5,000 for the year, if  
               they were not receiving any child support at all.  And  
               the obligee, under this bill cannot terminate the  
               contract based only on the amount collected being less  
               than ideal, because it would meet the 50% collections  
                                                                       




          AB 2781 (Leno)
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               per 12-months rule. 

            e.    Requiring certain disclosures in advertisements and  
            solicitations  

               In response to complaints that PCSCs were selecting  
               names that confused obligees into thinking they were a  
               government agency, AB 2781 would require all  
               advertisements and solicitations to indicate the PCSC  
               is not a government entity and either charges an  
               up-front fee even if it does not collect anything, or  
               charges a fee for its services.  If solicitation is  
               made by telephone, the solicitor must state the same  
               disclosure in the first 30 seconds of any initial  
               telephone conversation between a PCSC and the obligee.

          4.    Opposition from Los Angeles County Bar  

            This bill would include, in the definition of a PCSC, an  
            attorney whose business is substantially comprised of  
            child support collections.  "Substantially" means that at  
            least 50% of the attorney's business in terms of  
            remuneration or time spent, is comprised of activities  
            seeking to collect or enforce child support obligations  
            for other individuals.

            The Los Angeles County Bar Association Family Law Section  
            is vehemently opposed to the inclusion of attorneys in  
            the definition of PCSC.  

                AB 2781 defines a "private child support  
                collector" so broadly that its restrictive  
                provisions are unjustifiably applicable to  
                legitimate attorneys engaged in the good faith  
                qualified, competent and ethical specialized  
                practice of fair and reasonable child support  
                enforcement?As the direct result of AB 2781's  
                overbroad definition of a "private child support  
                collector," not only will an obligee-mother be  
                "limited" in hiring a collection agency, she  
                will potentially also not be able to hire an  
                "effective, qualified, competent and ethical  
                private family law attorney engaged in the  
                specialized practice of child support  
                enforcement" either, even if she wished to do so  
                                                                       




          AB 2781 (Leno)
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                and is perfectly willing and satisfied with the  
                contractual arrangements offered by such private  
                family law attorney of her choice."



          4.    Bill needs to be more organized, for ease of use  

            AB 2781 clearly contains more of the consumer protections  
            that the vetoed bill, SB 339 (Alpert, 2003) had, than did  
            SB 896 (Runner, 2005).  At the same time, the  
            improvements over SB 339 are measured, and still leaves  
            room for further strengthening in the future.  In the  
            meantime, this bill should provide parameters for a  
            growing industry, largely unregulated now, to operate in  
            a way that does not cause more harm than good to  
            Californians.

            Staff suggests that for this Act to be more easily read,  
            understood, implemented, and accessed, it should be  
            reorganized and recast.  The convenience of seeking  
            information that is already organized cannot be  
            overemphasized.

            SHOULD THIS BILL BE REORGANIZED?


          Support:   California Commission on the Status of Women;  
                 Supportkids, Inc.; Consumers Union; California  
                 Alliance for Families and Children; California NOW

          Opposition: Los Angeles County Bar Association Family Law  
          Section

                                     HISTORY
           
          Source: National Center for Youth Law; Chidlrens Advocacy  
          Institute (sponsors)

          Related Pending Legislation: None Known

          Prior Legislation: SB 339 (Alpert, 2003) Vetoed. (See  
          Background.)
                         SB 896 (Runner, 2005) (See Background.)  
                         (This bill is currently on Assembly 2nd  
                                                                       




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                         Reading.)

          Prior Vote: Asm. Jud. (Ayes 6, Noes 3)
                    Asm. Flr. (Ayes 47, Noes 32)
          
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