Amended in Senate April 22, 2013

Amended in Senate April 1, 2013

Senate Bill No. 233

Introduced by Senators Leno and Correa

February 11, 2013

An act to add Title 1.6C.5 (commencing with Section 1788.50) to Part 4 of Division 3 of the Civil Code, and to amend Sections 700.010, 706.103, 706.104, 706.108, and 706.122 of, and to add Section 581.5 to, the Code of Civil Procedure, relating to debt buyers.

LEGISLATIVE COUNSEL’S DIGEST

SB 233, as amended, Leno. Debt buyers.

(1) Existing state and federal law regulate the practice of debt collection. Existing state law prohibits a debt collector from engaging in specified conduct, including the use of threats or causing a telephone to ring repeatedly to annoy the person called. Existing law prohibits a debt collector from obtaining an affirmation from a debtor of a consumer debt that has been discharged in bankruptcy, without clearly and conspicuously disclosing to the debtor, in writing, the fact that the debtor is not legally obligated to make such affirmation.

This bill would enact the Fair Debt begin delete Buyers end delete begin insert Buying end insert Practices Act, which would regulate the activities of a person or entity that has bought begin insert charged-off end insert consumer begin delete debt end delete begin insert loans for collection purposes end insert and the circumstances begin delete in end delete begin insert pursuant to end insert which the person may bring suit. begin insert The bill would apply to consumer debt sold or resold on or after January 1, 2014. end insert The bill would prohibit a debt buyer, as defined, from making any written statement in an attempt to collect a consumer debt unless the debt buyer possesses information that the debt buyer is the sole owner begin insert or is authorized to assert the rights of all owners end insert of the specific debt at issue, the debt balance, as specified, and the name and address of the creditor at the time the debt was charged off, among other things. The bill would require the debt buyer to make certain documents available to the debtor, without charge, upon receipt of a request, within 15 days. The bill would require that a specified notice be included with the debt buyer’s first written communication with the debtor. The bill would require all settlement agreements between a debt buyer and a debtor to be documented in open court or otherwise in writing and would require a debt buyer who receives a payment on a debt to provide a receipt or statement containing certain information. The bill would prohibit a debt buyer from initiating a suit to collect a debt if the statute of limitations on the cause of action has expired. The bill would prescribe penalties for each violation of the act and would provide that its provisions may not be waived. The bill would require a debt buyer bringing an action on consumer debt to include certain information in his or her complaint. The bill would prohibit an entry of judgment in favor of a plaintiff debt buyer unless business records authenticated through a sworn declaration and relating to the debt and ownership of it, among other things, are submitted by the debt buyer to the court, and would permit a court to dismiss a debt buyer’s action to collect with prejudice if this information is not provided or if the debt buyer fails to appear or is not prepared on the date scheduled for trial.

(2) Existing law establishes a process for the enforcement of money judgments and requires a levying officer to provide certain documents and information to a judgment debtor and to a designated employer in connection with wage garnishment. Existing law permits a process server also to serve an earnings withholding order on an employer and requires that the process server also serve certain documents at this time. Existing law requires an employer who is served with an earnings withholding order to provide certain documents to an employee who is a judgment debtor.

This bill would require, in the circumstances described above, that a copy of the form that the judgment debtor may use to make a claim of exemption and a copy of the form used to provide a financial statement also be provided.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature finds and declares the following:

(a) The collection of debt purchased by debt buyers has become
a significant focus of public concern due to the adequacy of
documentation required to be maintained by the industry in support
of its collection activities and litigation.

(b) State law does not currently prescribe the specific nature of
documentation that a debt buyer must maintain and produce in a
legal action on the debt.

(c) Documentation used to support the collection of a debt must
be sufficient to prove that the individual who is being asked to pay
the debt is in fact the individual associated with the original
contract or agreement, and that the amount of indebtedness is
accurate.

(d) It is important to create documentation and process standards
for the collection of consumer debt that all interested parties can
easily understand.

(e) Setting specific documentation and process standards will
protect consumers, provide needed clarity to courts, and establish
clearer criteria for debt buyers and the collection industry.

SEC. 2.  

Title 1.6C.5 (commencing with Section 1788.50) is
added to Part 4 of Division 3 of the Civil Code, to read:

 

Title 1.6C.5.  Fair Debt begin delete Buyers end delete begin insert Buying end insert Practices
Act

 

1788.50.  

(a) As used in this title, “debt buyer” means a person
or entity that is regularly engaged in the business of purchasing
charged-off consumer begin delete loans, consumer credit accounts, or other
delinquent consumer end delete debt for collection purposes, whether it
collects the debt itself, hires a third party for collection, or hires
an attorney-at-law for collection litigation. begin insert “Debt buyer” does not
mean a person or entity that acquires a charged-off consumer debt
incidental to the purchase of a portfolio predominantly consisting
of consumer debt that has not been charged off. end insert

begin delete

(b) “Debt buyer” includes any parent, subsidiary, or other
affiliate that exercises direct control over the person or entity
described in subdivision (a).

end delete begin delete

(c)

end delete

begin insert (b) end insert  The acquisition by a check services company of the right to
collect on a paper or electronic check instrument, including an
Automated Clearing House item, that has been returned unpaid to
a merchant does not constitute a purchase of delinquent consumer
debt under this title.

begin delete

(d)

end delete

begin insert (c) end insert  Terms defined in Title 1.6C (commencing with Section
1788) shall apply to this title.

begin insert

(d) This title shall apply to debt buyers with respect to all
consumer debt sold or resold on or after January 1, 2014.

end insert

1788.52.  

(a) A debt buyer shall not make any written statement
to a debtor in an attempt to collect a consumer debt unless the debt
buyer possesses the following information:

(1) That the debt buyer is the sole owner of the debt at issue begin delete , end delete or
has authority to assert the rights of all owners of the debt.

(2) The debt balance at charge off and an explanation of the
amount, nature, and reason for all post-charge-off begin insert interest and end insert fees
begin delete and charges end delete , begin insert if any, end insert imposed by the charge-off creditor or any
subsequent purchasers of the debt. This paragraph shall not be
deemed to require a specific begin delete itemization of each charge end delete begin insert itemization,
but the explanation shall identify separately the charge-off balance,
the total of any post end insert begin insert -charge-off interest, and the total of any
post end insert begin insert -charge-off fees end insert .

(3) The date of default or the date of the last payment.

(4) The name and an address of the charge-off creditor at the
time of charge off, and the charge-off creditor’s account number
associated with the debt. The charge-off creditor’s name and
address shall be in sufficient form so as to reasonably identify begin delete it end delete
begin insert the charge-off creditor end insert .

(5) The name and last known address of the debtor as they
appeared in the charge-off creditor’s records prior to the sale of
the debt. begin delete Where end delete begin insert If end insert the debt was sold prior to January 1, 2014, the
name and last known address begin insert of the debtor end insert as they appeared in the
debt owner’s records on December 31, 2013, shall be sufficient.

(6) The names and addresses of all persons or entities that
purchased the debt after charge off, including the begin delete plaintiff end delete debt
buyer begin insert making the written statement end insert . The names and addresses begin delete of
these persons or entities end delete shall be in sufficient form so as to
reasonably identify begin delete them end delete begin insert each such purchaser end insert .

(b) A debt buyer shall not make any written statement to a debtor
in an attempt to collect a consumer debt unless the debt buyer has
access to a copy of a contract or other document evidencing the
debtor’s agreement to the debt. If the claim is based on debt for
which no signed contract or agreement exists, the debt buyer shall
have access to a copy of a document provided to the debtor while
the account was active, demonstrating that the debt was incurred
by the debtor. For a revolving credit account, the most recent
monthly statement recording a purchase transaction, last payment,
or balance transfer shall be deemed sufficient to satisfy this
requirement.

(c) A debt buyer shall provide the information or documents
identified in subdivisions (a) and (b) to the debtor without charge
within 15 calendar days of receipt of a debtor’s written request for
information regarding the debt or proof of the debt. If the debt
buyer cannot provide the information or documents within 15
calendar days, the debt buyer shall cease all collection of the debt
until the debt buyer provides the debtor the information or
documents described in subdivisions (a) and (b). Except as
provided otherwise in this title, the request by the debtor shall be
consistent with the validation requirements contained in Section
1692g of Title 15 of the United States Code. A debt buyer shall
provide all debtors with whom it has contact begin delete with end delete an active postal
address begin delete and an active e-mail address end delete to which these requests can
be sent. A debt buyer may also provide an active email address to
which these requests can be sent and begin delete from end delete begin insert through end insert which
information and documents can be delivered, if the parties agree.

(d) (1) A debt buyer shall include with its first written
communication with the debtor in no smaller than 12-point type,
a separate prominent notice that provides:

begin insert end insert

“You may request records showing the following: (1) that [insert
name of debt buyer] has the right to seek collection of the debt;
(2) the debt balance, including begin delete any additional fees and charges end delete begin insert an
explanation of any interest charges and additional fees end insert ; (3) the
date of default or the date of the last payment; (4) the name of the
begin insert charge-off end insert creditor and the account number associated with the
debt; (5) the name and last known address of the debtor as it
appeared in the begin insert charge-off end insert creditor’s or debt buyer’s records prior
to the sale of the debt, as appropriate; begin insert and end insert (6) the names of all
persons or entities that have purchased the debt. You may also
request from us a copy of the contract or other document
evidencing your agreement to the debt.

“A request for these records may be addressed to: [insert debt
buyer’s active mailing address begin insert and e-mail address, if applicable end insert ].”

(2) When collecting on a time-barred debt where the debt is not
past the date for obsolescence provided for in Section 605(a) of
the begin insert federal end insert Fair Credit Reporting Act (15 U.S.C. Sec. 1681c):

“The law limits how long you can be sued on a debt. Because
of the age of your debt, we will not sue you for it. If you do not
pay the debt, [insert name of debt buyer] may [continue to] report
it to the credit reporting agencies as unpaid begin insert for as long as the law
permits this reporting end insert .”

(3) When collecting on a time-barred debt where the debt is
past the date for obsolescence provided for in Section 605(a) of
the begin insert federal end insert Fair Credit Reporting Act (15 U.S.C. Sec. 1681c):

“The law limits how long you can be sued on a debt. Because
of the age of your debt, we will not sue you for it, and we will not
report it to any credit reporting agency.”

(e) If a language other than English is principally used by the
debt buyer in the initial oral contact with the debtor, begin delete a end delete begin insert the end insert notice
begin insert required by subdivision (d) end insert shall be provided to the debtor in that
language within five working days.

(f) In the event of a conflict between the requirements of
subdivision (d) and federal law, so that it is impracticable to comply
with both, the requirements of federal law shall prevail.

1788.54.  

(a) All settlement agreements between a debt buyer
and a debtor shall be documented in open court or otherwise
reduced to writing. The debt buyer shall ensure that a copy of the
written agreement is provided to the debtor.

(b) A debt buyer that receives payment on a debt shall provide,
within 30 calendar days, a receipt or monthly statement, to the
debtor. The receipt or statement shall clearly and conspicuously
show the amount and date paid, the name of the entity paid, the
current account number, the name of the charge-off creditor, the
account number issued by the charge-off creditor, and the
remaining balance owing, if any. The receipt or statement may be
provided electronically if the parties agree.

(c) A debt buyer that accepts a payment as payment in full, or
as a full and final compromise of the debt, shall provide, within
30 calendar days, a final statement that complies with subdivision
(b). A debt buyer shall not sell an interest in a resolved debt, or
any personal or financial information related to the resolved debt.

1788.56.  

A debt buyer shall not bring suit or initiate an
arbitration or other legal proceeding to collect a consumer debt if
the applicable statute of limitations on the debt buyer’s claim has
expired.

1788.58.  

In an action brought by a debt buyer on a consumer
debt:

(a) The complaint shall allege all of the following:

(1) That the plaintiff is a debt buyer.

(2) The nature of the underlying debt and the consumer
transaction or transactions from which it is derived, in a short and
plain statement.

(3) That the debt buyer is the sole owner of the debt at issue, or
has authority to assert the rights of all owners of the debt.

(4)  begin delete The debt balance at charge off and an explanation of the
amount, nature, and reason for all post-charge-off fees and charges,
imposed by the charge-off creditor or any subsequent purchaser
of the debt. This paragraph shall not be deemed to require a specific
itemization of each charge. end delete begin insert The debt balance at charge off and an
explanation of the amount, nature, and reason for all
post-charge-off interest and fees, if any, imposed by the charge-off
creditor or any subsequent purchasers of the debt. This paragraph
shall not be deemed to require a specific itemization, but the
explanation shall identify separately the charge-off balance, the
total of any post end insert begin insert -charge-off interest, and the total of any
post-charge-off fees. end insert

(5) The date of default or the date of the last payment.

(6) The name and an address of the charge-off creditor at the
time of charge off, and the charge-off creditor’s account number
associated with the debt. The charge-off creditor’s name and
address shall be in sufficient form so as to reasonably identify begin delete it end delete
begin insert the charge-off creditor end insert .

(7) The name and last known address of the debtor as they
appeared in the begin insert charge-off end insert creditor’s records prior to the sale of
the debt. If the debt was sold prior to January 1, 2014, the debtor’s
name and last known address as they appeared in the debt owner’s
records on December 31, 2013, shall be sufficient.

(8) The names and addresses of all persons or entities that
purchased the debt after charge off, including the plaintiff debt
buyer. The names and addresses begin delete of these persons or entities end delete shall
be in sufficient form so as to reasonably identify begin delete them end delete begin insert each such
purchaser end insert .

(9) That the debt buyer has complied with Section 1788.52.

(b) A copy of the contract or other document described in
subdivision (b) of Section 1788.52, shall be attached to the
complaint.

(c) The requirements of this title shall not be deemed to require
the disclosure in public records of personal, financial, or medical
information, the confidentiality of which is protected by any state
or federal law.

1788.60.  

(a) In an action initiated by a debt buyer, no default
or other judgment may be entered against a debtor unless business
records, authenticated through a sworn declaration, are submitted
by the debt buyer to the court to establish the facts required to be
alleged by paragraphs (3) to (8), inclusive, of subdivision (a) of
Section 1788.58.

(b) No default or other judgment may be entered against a debtor
unless a copy of the contract or other document described in
subdivision (b) of Section 1788.52, authenticated through a sworn
declaration, has been submitted by the debt buyer to the court.

(c) In any action on a consumer debt, if a debt buyer plaintiff
seeks a default judgment and has not complied with the
requirements of this title, the court shall not enter a default
judgment for the plaintiff and may, in its discretion, dismiss the
action.

(d) Except as provided in this title, this section is not intended
to modify or otherwise amend the procedures established in Section
585 of the Code of Civil Procedure.

1788.62.  

(a)  begin delete A end delete begin insert In the case of an action brought by an
individual or individuals, a end insert debt buyer that violates any provision
of this title with respect to any person shall be liable to that person
in an amount equal to the sum of the following:

(1) Any actual damages sustained by that person as a result of
the violation, including, but not limited to, the amount of any
judgment obtained by the debt buyer as a result of a time-barred
suit to collect a debt from that person.

(2) Statutory damages in an amount as the court may allow,
which shall not be less than one hundred dollars ($100) nor greater
than one thousand dollars ($1,000) begin delete per violation end delete .

(b) In the case of a class action, a debt buyer that violates any
provision of this title shall be liable for any statutory damages for
each named plaintiff as provided in paragraph (2) of subdivision
(a). If the court finds that the debt buyer engaged in a pattern and
practice of violating any provision of this title, the court may award
additional damages to the class in an amount not to exceed the
lesser of five hundred thousand dollars ($500,000) or 1 percent of
the net worth of the debt buyer.

(c) (1) In the case of any successful action to enforce liability
under this section, the court shall award costs of the action, together
with reasonable attorney’s fees as determined by the court.

(2) Reasonable attorney’s fees may be awarded to a prevailing
debt buyer upon a finding by the court that the plaintiff’s
prosecution of the action was not in good faith.

(d) In determining the amount of liability under subdivision (b),
the court shall consider, among other relevant factors, the frequency
and persistence of noncompliance by the debt buyer, the nature of
the noncompliance, the resources of the debt buyer, and the number
of persons adversely affected.

(e) A debt buyer shall have no civil liability under this section
if the debt buyer shows by a preponderance of evidence that the
violation was not intentional and resulted from a bona fide error,
and occurred notwithstanding the maintenance of procedures
reasonably adopted to avoid any error.

(f) An action to enforce any liability created by this title shall
be brought within one year from the date of the last violation.

(g) Recovery in an action brought under the Rosenthal Fair Debt
Collection Practices Act (Title 1.6C (commencing with Section
begin delete 1788) end delete begin insert 1788)) end insert or the federal Fair Debt Collection Practices Act (15
U.S.C. Sec. 1692 et begin delete seq.)) end delete begin insert seq.) end insert shall preclude recovery for the
same acts in an action brought under this title.

1788.64.  

Any waiver of the provisions of this title is contrary
to public policy, and is void and unenforceable.

SEC. 3.  

Section 581.5 is added to the Code of Civil Procedure,
to read:

581.5.  

In a case involving consumer debt, as defined in Section
1788.2 of the Civil Code, and as regulated under Title 1.6C.5
(commencing with Section 1788.50) of Part 4 of Division 3 of the
Civil Code, if the defendant debtor appears for trial on the
scheduled trial date, and the plaintiff debt buyer either fails to
appear or is not prepared to proceed to trial, and the court does not
find a good cause for continuance, the court may, in its discretion,
dismiss the action with or without prejudice. Notwithstanding any
other law, in this instance, the court may award the defendant
debtor’s costs of preparing for trial, including, but not limited to,
lost wages and transportation expenses.

SEC. 4.  

Section 700.010 of the Code of Civil Procedure is
amended to read:

700.010.  

(a) At the time of levy pursuant to this article or
promptly thereafter, the levying officer shall serve a copy of the
following on the judgment debtor:

(1) The writ of execution.

(2) A notice of levy.

(3) If the judgment debtor is a natural person, a copy of the form
listing exemptions prepared by the Judicial Council pursuant to
subdivision (c) of Section 681.030, the list of exemption amounts
published pursuant to subdivision (e) of Section 703.150, a copy
of the form that the judgment debtor may use to make a claim of
exemption pursuant to Section 703.520, and a copy of the form
the judgment debtor may use to provide a financial statement
pursuant to Section 703.530.

(4) Any affidavit of identity, as defined in Section 680.135, for
names of the debtor listed on the writ of execution.

(b) Service under this section shall be made personally or by
mail.

SEC. 5.  

Section 706.103 of the Code of Civil Procedure is
amended to read:

706.103.  

(a) The levying officer shall serve upon the
designated employer all of the following:

(1) The original and one copy of the earnings withholding order.

(2) The form for the employer’s return.

(3) The notice to employee of earnings withholding order.

(4) A copy of the form that the judgment debtor may use to
make a claim of exemption.

(5) A copy of the form the judgment debtor may use to provide
a financial statement.

(b) At the time the levying officer makes service pursuant to
subdivision (a), the levying officer shall provide the employer with
a copy of the employer’s instructions referred to in Section
706.127. The Judicial Council may adopt rules prescribing the
circumstances when compliance with this subdivision is not
required.

(c) No earnings withholding order shall be served upon the
employer after the time specified in subdivision (b) of Section
699.530.

SEC. 6.  

Section 706.104 of the Code of Civil Procedure is
amended to read:

706.104.  

Any employer who is served with an earnings
withholding order shall:

(a) Deliver to the judgment debtor a copy of the earnings
withholding order, the notice to employee of earnings withholding,
a copy of the form that the judgment debtor may use to make a
claim of exemption, and a copy of the form the judgment debtor
may use to provide a financial statement within 10 days from the
date of service. If the judgment debtor is no longer employed by
the employer and the employer does not owe the employee any
earnings, the employer is not required to make such delivery. The
employer is not subject to any civil liability for failure to comply
with this subdivision. Nothing in this subdivision limits the power
of a court to hold the employer in contempt of court for failure to
comply with this subdivision.

(b) Complete the employer’s return on the form provided by
the levying officer and mail it by first-class mail, postage prepaid,
to the levying officer within 15 days from the date of service. If
the earnings withholding order is ineffective, the employer shall
state in the employer’s return that the order will not be complied
with for this reason and shall return the order to the levying officer
with the employer’s return.

SEC. 7.  

Section 706.108 of the Code of Civil Procedure is
amended to read:

706.108.  

(a) If a writ of execution has been issued to the county
where the judgment debtor’s employer is to be served and the time
specified in subdivision (b) of Section 699.530 for levy on property
under the writ has not expired, a judgment creditor may deliver
an application for issuance of an earnings withholding order to a
registered process server who may then issue an earnings
withholding order.

(b) If the registered process server has issued the earnings
withholding order, the registered process server, before serving
the earnings withholding order, shall deposit with the levying
officer a copy of the writ of execution, the application for issuance
of an earnings withholding order, and a copy of the earnings
withholding order, and shall pay the fee provided by Section 26750
of the Government Code.

(c) A registered process server may serve an earnings
withholding order on an employer whether the earnings
withholding order was issued by a levying officer or by a registered
process server, but no earnings withholding order may be served
after the time specified in subdivision (b) of Section 699.530. In
performing this function, the registered process server shall serve
upon the designated employer all of the following:

(1) The original and one copy of the earnings withholding order.

(2) The form for the employer’s return.

(3) The notice to the employee of the earnings withholding
order.

(4) A copy of the form that the judgment debtor may use to
make a claim of exemption.

(5) A copy of the form the judgment debtor may use to provide
a financial statement.

(6) A copy of the employer’s instructions referred to in Section
706.127, except as otherwise prescribed in rules adopted by the
Judicial Council.

(d) Within five court days after service under this section, all
of the following shall be filed with the levying officer:

(1) The writ of execution, if it is not already in the hands of the
levying officer.

(2) Proof of service on the employer of the papers listed in
subdivision (c).

(3) Instructions in writing, as required by the provisions of
Section 687.010.

(e) If the fee provided by Section 26750 of the Government
Code has been paid, the levying officer shall perform all other
duties required by this chapter as if the levying officer had served
the earnings withholding order. If the registered process server
does not comply with subdivisions (b), where applicable, and (d),
the service of the earnings withholding order is ineffective and the
levying officer is not required to perform any duties under the
order and may terminate the order and may release any withheld
earnings to the judgment debtor.

(f) The fee for services of a registered process server under this
section shall be allowed as a recoverable cost pursuant to Section
1033.5.

SEC. 8.  

Section 706.122 of the Code of Civil Procedure is
amended to read:

706.122.  

The “notice to employee of earnings withholding
order” shall contain a statement that informs the employee in
simple terms of the nature of a wage garnishment, the right to an
exemption, the procedure for claiming an exemption, and any other
information the Judicial Council determines would be useful to
the employee and appropriate for inclusion in the notice, including
all of the following:

(a) The named employer has been ordered to withhold from the
earnings of the judgment debtor the amounts required to be
withheld under Section 706.050, or such other amounts as are
specified in the earnings withholding order, and to pay these
amounts over to the levying officer for transmittal to the person
specified in the order in payment of the judgment described in the
order.

(b) The manner of computing the amounts required to be
withheld pursuant to Section 706.050.

(c) The judgment debtor may be able to keep more or all of the
judgment debtor’s earnings if the judgment debtor proves that the
additional earnings are necessary for the support of the judgment
debtor or the judgment debtor’s family supported in whole or in
part by the judgment debtor.

(d) If the judgment debtor wishes a court hearing to prove that
amounts should not be withheld from the judgment debtor’s
earnings because they are necessary for the support of the judgment
debtor or the judgment debtor’s family supported in whole or in
part by the judgment debtor, the judgment debtor shall file with
the levying officer an original and one copy of the “judgment
debtor’s claim of exemption” and an original and one copy of the
“judgment debtor’s financial statement.”

SEC. 9.  

The provisions of this act are severable. If any
provision of this section or its application is held invalid, that
invalidity shall not affect other provisions or applications that can
be given effect without the invalid provision or application.