BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                  AB 2781|
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                                 THIRD READING


          Bill No:  AB 2781
          Author:   Leno (D)
          Amended:  8/8/06 in Senate
          Vote:     21

           
           SENATE JUDICIARY COMMITTEE  :  3-1, 6/27/06
          AYES:  Dunn, Escutia, Kuehl
          NOES:  Harman
          NO VOTE RECORDED:  Morrow
           
          ASSEMBLY FLOOR  :  47-32, 5/30/06 - See last page for vote


           SUBJECT  :    Private child support collectors

           SOURCE  :     National Center for Youth Law
                      Childrens Advocacy Institute


           DIGEST  :    This bill requires 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, requires PCSCs to follow the debt collection practices  
          that apply to collectors of other types of consumer debt,  
          and provides remedies when PCSCs do not comply with these  
          requirements. 

           ANALYSIS  :    Existing law governs the collection of child  
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          support by local child support agencies.  [Section 17000 et  
          seq. of the Family Code (all references are to the Family  
          Code)]

          This bill requires 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 provisions, this bill:

          1.  Definition of PCSC  .  Defines 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 percent of time spent or remuneration  
             received) comprised of child support collections.   
             [Proposed Section 5610(a)]

          2.  Written contract requirements  .  Requires contracts to be  
             in 10-point type and disclose all of the following:  (a)  
             the fees imposed by the contract and an example of how  
             they are calculated, (b) the amount of fees to be  
             charged set by the agency and not set by state law, (c)  
             the PCSC cannot charge fees on current support if the  
             obligee received any current child support during the  
             six months preceding the contract with the PCSC, (d) the  
             nature of services to be provided, (e) the expected  
             duration of the contract, (f) how the contract may be  
             canceled, (g) the address and other access information  
             for the PCSC, (h) that the PCSC is not a government  
             entity, and government child support agencies in  
             California provide services free of charge, (i) 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), (j)  
             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, (k) that the  
             obligee may seek, or continue to use the services of a  
             government child support agency and the PCSC will not  

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             require or request that the obligee cease or refrain  
             from engaging in those services, (l) 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, and (m) a notice of  
             cancellation must  be included.

          This bill also provides 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 specifies 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 collected through wage garnishment,  
             that the amount received from the 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. 

          3.  Notice of cancellation form  .  Requires 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.

          4.  Right to cancel a contract, termination of contract  .   
             Provides 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  

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             the amount of the child support collected is less than  
             50 percent 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. 

          5.  Effect of assignment to PCSC  .  Provides that an  
             assignment to a PCSC is a voluntary assignment for  
             purposes of bankruptcy.

          6.  No fees for current support and refund of improperly  
             retained fees  .  Provides 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 requires 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 Section 5610 c (5)] 

          7.  Information to be given to obligee  .  Requires the PCSC  
             to provide all of the following information:  (a) the  
             amount of each collection, and the date it was received  
             by the PCSC and sent by the PCSC to the obligee, (b) the  
             amount of payment sent to the obligee and the amount and  
             percentage of each payment kept by the PCSC as its fee,  
             (c) the name of and other identifying information  
             relating to any obligor who made child support payments  
             collected by the PCSC, (d) 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 Section 5610(d)]

          8.  Direct deposit account  .  Requires 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 Department of Child Support Services (DCSS)  
             of the portion of each collection that constitutes a  

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             fee.  The notice to DCSS shall be in electronic format.   
             [Proposed Section 5610(d)(3)]

          9.  Recordkeeping  .  Requires 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. 

           Debt Collection Practices

           Existing law, the Rosenthal Fair Debt Collection Practices  
          Act (Act), prohibits debt collectors from engaging in a  
          variety of practices in collecting consumer debt.  

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

          This bill prohibits a PCSC from engaging in debt collection  
          practices that are prohibited by the Act. 

          This bill prohibits 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.

          This bill prohibits 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  

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          by the government entity, a court order, the obligee, or  
          the obligor as to the amount of the obligation due and  
          owing.

          This bill prohibits 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.

           Remedies  

          Existing law authorizes the following remedies for  
          violation of the Act:

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

          1. It permits an action for actual damages resulting from a  
             violation.

          2. 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.

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

          4. 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.  

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             1788.30 of the Civil Code.

          5. 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.

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

           Other Provisions
           
          1.  Obligor to Pay Half PCSC Fee and Other Costs Ordered by  
             Court
           
             This bill provides 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 provides 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.

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

             This bill requires 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:   

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             (a) the amount of arrearages subject to collection, (b)  
             the amount of the collection that will be applied to the  
             arrearage, and (c) 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.

          2.    Attorneys Acting as PCSCs  

             This bill requires 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 allows 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. 

          3.  Lien on Real Property  

             This bill specifies 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, however, does not prevent the PCSC from  
             collecting fees it is owed by recording a new judgment  
             lien as otherwise authorized by law.

          4.    Notice to Local Child Support Agency  

             This bill requires 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  

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             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.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No    
          Local:  No

           SUPPORT  :   (Verified  8/8/06)

          National Center for Youth Law (co-source)
          Childrens Advocacy Institute (co-source)
          California Alliance for Families and Children
          California Commission on the Status of Women
          California NOW
          Consumers Union
          Supportkids, Inc.

           OPPOSITION  :    (Verified  8/8/06)

          Los Angeles County Bar Association Family Law Section

           ARGUMENTS IN SUPPORT  :    This bill 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  

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            emerged out of a self-stated need to assist parents who  
            have not been successful in collecting child support  
            from noncustodial 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."

           ARGUMENTS IN OPPOSITION :    This bill includes, in the  
          definition of a PCSC, an attorney whose business is  
          substantially comprised of child support collections.   
          "Substantially" means that at least 50 percent 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 and is perfectly willing and satisfied with the  
            contractual arrangements offered by such private family  
            law attorney of her choice."


           ASSEMBLY FLOOR  : 
          AYES:  Arambula, Baca, Bass, Berg, Bermudez, Calderon,  
            Canciamilla, Chan, Chavez, Chu, Cohn, Coto, De La Torre,  

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            Dymally, Evans, Frommer, Goldberg, Hancock, Jerome  
            Horton, Jones, Karnette, Klehs, Koretz, Laird, Leno,  
            Levine, Lieber, Lieu, Liu, Matthews, Montanez, Mullin,  
            Nation, Nava, Negrete McLeod, Oropeza, Parra, Pavley,  
            Ridley-Thomas, Ruskin, Saldana, Salinas, Umberg, Vargas,  
            Wolk, Yee, Nunez
          NOES:  Aghazarian, Benoit, Blakeslee, Bogh, Cogdill,  
            Daucher, DeVore, Emmerson, Garcia, Harman, Haynes,  
            Shirley Horton, Houston, Huff, Keene, La Malfa, La Suer,  
            Leslie, Maze, McCarthy, Mountjoy, Nakanishi, Niello,  
            Plescia, Richman, Sharon Runner, Spitzer, Strickland,  
            Tran, Villines, Walters, Wyland
          NO VOTE RECORDED:  Torrico


          RJG:mel  8/8/06   Senate Floor Analyses 
  
                         SUPPORT/OPPOSITION:  SEE ABOVE

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