BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 2781| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 CONTINUED AB 2781 Page 2 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 CONTINUED AB 2781 Page 3 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 CONTINUED AB 2781 Page 4 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 CONTINUED AB 2781 Page 5 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 CONTINUED AB 2781 Page 6 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. CONTINUED AB 2781 Page 7 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: CONTINUED AB 2781 Page 8 (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 CONTINUED AB 2781 Page 9 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 CONTINUED AB 2781 Page 10 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, CONTINUED AB 2781 Page 11 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 **** END **** CONTINUED