BILL ANALYSIS                                                                                                                                                                                                    



                                                                            



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          |SENATE RULES COMMITTEE            |                        SB 233|
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                                    THIRD READING


          Bill No:  SB 233
          Author:   Leno (D)
          Amended:  4/22/13
          Vote:     21

           
           SENATE BANKING & FINANCIAL INSTITUTIONS COMM.  :  8-0, 4/17/13
          AYES:  Correa, Berryhill, Beall, Calderon, Corbett, Hill, Hueso,  
            Roth
          NO VOTE RECORDED:  Walters

           SENATE JUDICIARY COMMITTEE  :  6-0, 5/7/13
          AYES:  Evans, Anderson, Corbett, Jackson, Leno, Monning
          NO VOTE RECORDED:  Walters


           SUBJECT  :    Debt buyers

           SOURCE  :     Attorney General Kamala Harris


           DIGEST  :    This bill enacts the Fair Debt Buying Practices Act,  
          to further regulate the activities of persons and entities that  
          purchase charged-off consumer loans, as specified.  

           ANALYSIS  :    Existing federal law provides for the Fair Debt  
          Collection Practices Act (FDCPA), whose stated purposes are to  
          eliminate abusive practices in the collection of consumer debts,  
          promote fair debt collection, and provide consumers with an  
          avenue for disputing and obtaining validation of debt  
          information in order to ensure the information's accuracy.  The  
          FDCPA creates guidelines under which debt collectors may conduct  
          business, defines rights of consumers involved with debt  
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          collectors, and prescribes penalties and remedies for violations  
          of FDCPA.  Responsibility for enforcing the FDCPA was  
          transferred from the Federal Trade Commission (FTC) to the  
          federal Consumer Financial Protection Bureau through the  
          Dodd-Frank Wall Street Reform and Consumer Protection Act.  

          Existing state law provides for the Rosenthal Fair Debt  
          Collection Practices Act, whose stated purposes are to prohibit  
          debt collectors from engaging in unfair or deceptive acts or  
          practices in the collection of consumer debts and to require  
          debtors to act fairly in entering into and honoring such debts.   
          The Act prohibits deceptive, dishonest, unfair and unreasonable  
          debt collection practices by debt collectors, and regulates the  
          form and content of communications by debt collectors to debtors  
          and others.  

          This bill:

           1. Establishes the Fair Debt Buying Practices Act to regulate  
             the activities of a person or entity (debt buyer) that has  
             bought charged-off consumer loans for collection purposes.

           2. Defines a "debt buyer," as a person or entity that is  
             regularly engaged in the business of purchasing charged-off  
             consumer debt for collection purposes, whether it collects  
             the debt itself, hires a third party for collection, or hires  
             an attorney for collection litigation.  It 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.

           3. Applies the provisions of this bill to consumer debt sold or  
             resold on or after January 1, 2014.

           4. Prohibits a debt buyer from making any written statement to  
             a debtor in an attempt to collect a consumer debt, unless it  
             possesses the following information:

              A.    That the debt buyer is the sole owner of the debt at  
                issue or otherwise has authority to assert the rights of  
                all owners of the debt.

              B.    The debt balance at charge off and an explanation of  
                the amount, nature, and reason for all post-charge off  

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                interest and fees, if any, imposed by the charge-off  
                creditor or any subsequent purchasers of the debt.  A  
                specific itemization is not required, but the explanation  
                shall identify separately the charge-off balance, the  
                total of any post-charge-off interest, and the total of  
                any post-charge-off fees.

              C.    The date of default or the date of the last payment by  
                the debtor.

              D.    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.

              E.    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.

              F.    The names and addresses of all persons or entities  
                that purchased the debt after charge off, including the  
                debt buyer making the written statement.

           1. Prohibits a debt buyer from making any written statement to  
             a debtor in an attempt to collect a consumer debt, unless it  
             has access to a copy of the contract or other document  
             evidencing the debtor's agreement to the debt.  

           2. Requires a debt buyer to include a statement with its first  
             written communication to a debtor in no smaller than 12-point  
             type, a separate prominent notice informing the debtor that  
             he/she is eligible to request all of the information listed  
             in #4 and #5 above, and requires the debt buyer to provide  
             that information to a debtor, without charge, within 15  
             calendar days of receiving a debtor's written request for it.  
              Any debt buyer who is unable to provide the information to a  
             debtor within 15 calendar days must cease all attempts to  
             collect the debt, until that debt buyer is able to provide  
             the information.

           3. Provides that, if a language other than English is  
             principally used by a debt buyer in its initial oral contact  
             with a debtor, the debt buyer must provide the statement  
             described in #6 above to that debtor in that language, as  
             specified.

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           4. Requires all settlement agreements between a debt buyer and  
             a debtor to be documented in open court or otherwise reduced  
             to writing, and requires a debt buyer to ensure that a copy  
             of the written agreement is provided to the debtor.

           5. Requires debt buyers who receive payment on a debt to  
             provide a written receipt or monthly statement reflecting  
             that payment (or a final statement reflecting that payment,  
             if the payment is accepted as payment in full or as a final  
             compromise of the debt) to the debtor within 30 calendar  
             days.

           6. Prohibits a debt buyer from bringing suit or initiating 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.  

           7. Except as necessary to protect confidential personal,  
             financial, or medical information, requires the complaint in  
             an action brought by a debt buyer on a consumer debt to  
             allege the nature of the underlying debt and the consumer  
             transaction(s) from which it is derived, and to include all  
             of the information listed in #4 above, along with a statement  
             that the debt buyer complied with the provisions of the bill  
             described in #4 through #7 above.  Requires each complaint to  
             contain a copy of the contract or other document evidencing  
             the debtor's agreement to the debt as an attachment to the  
             complaint.  

           8. Provides that 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 information that is alleged in  
             the complaint, and unless a copy of the contract or other  
             document evidencing the debtor's agreement to the debt,  
             authenticated through a sworn declaration, has been submitted  
             by the debt buyer to the court.

           9. Provides that, if a debt buyer plaintiff seeks a default  
             judgment and has not complied with the provisions of the  
             bill, the court may not enter a default judgment for the  
             plaintiff and may, in its discretion, dismiss the action.  


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           10.Provides for all of the following, to enforce the provisions  
             of this bill:

              A.    In the case of an action brought by an individual(s),  
                a debt buyer who violates the provisions of the bill with  
                respect to a person is liable to that person for actual  
                damages, as specified, plus statutory damages between $100  
                and $1,000, plus reasonable attorneys' fees and costs, as  
                determined by the court.  

              B.    In the case of a class action, a debt buyer who  
                violates the provisions of the bill with respect to a  
                class is liable for statutory damages of between $100 and  
                $1,000 for each named plaintiff, plus reasonable  
                attorneys' fees and costs, as determined by the court.  

              C.    If, as part of a class action, a court finds that the  
                debt buyer engaged in a pattern and practice of violating  
                this bill, the court may award additional damages to the  
                class in an amount not to exceed the lesser of $500,000 or  
                1% of the net worth of the debt buyer.  

              D.    Courts are authorized to award reasonable attorneys'  
                fees and costs to a prevailing debt buyer, upon a finding  
                by the court that the plaintiff's prosecution of the  
                action was not in good faith.  

              E.    A debt buyer has no civil liability under the  
                provisions of the bill if it shows, by a preponderance of  
                the evidence, that its violation was not intentional,  
                resulted from a bona fide error, and occurred  
                notwithstanding the maintenance of procedures reasonably  
                adopted to avoid any such error.

              F.    Requires that any action brought to enforce the  
                provisions of the bill be brought within one year from the  
                date of the last violation by the debt buyer.  

              G.    Provides that recovery in an action brought under the  
                Rosenthal Fair Debt Collection Practices Act or the FDCPA  
                precludes recovery for the same acts in an action brought  
                under the provisions of this bill.

           1. Provides that any waiver of the provisions of this bill is  

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             contrary to public policy, and is void and unenforceable.

           2. Amends the Code of Civil Procedure to align the additional  
             information requirements of this bill with the requirements  
             that levying officers, process servicers, and employers must  
             follow in connection with wage garnishment.

           Background
           
          During 2012, approximately 30 million individuals nationwide  
          (14% of American adults who have credit reports) had debt that  
          was subject to the collections process.  The average amount of  
          consumer debt held by these consumers was $1,500.  

          Debt buyers are companies that purchase delinquent or  
          charged-off debts from a creditor for a fraction of the face  
          value of the debt.  Those companies have become subject to  
          increased scrutiny due to numerous complaints on behalf of  
          consumers.   FTC issued a report in July 2010 examining debt  
          collection litigation and arbitration proceedings that concluded  
          the "system for resolving consumer debt collection disputes is  
          broken" and recommended significant reforms.  (Repairing a  
          Broken System (July 2010))

          In a rule released by the federal Consumer Financial Protection  
          Bureau (CFPB) in October 2012, CFPB described the importance of  
          regulating the consumer debt collection industry.  It noted that  
          consumer debt collection is important to the functioning of the  
          consumer credit markets.  By collecting consumer debt,  
          collectors reduce creditors' losses from non-repayment and help  
          keep credit accessible and more affordable to consumers.  

          However, debt collection performed in illegal ways has the  
          potential to cause consumers substantial harm.  If collectors  
          falsely represent amounts owed, consumers may pay debts they do  
          not owe, either to stop collection efforts or because they are  
          unsure how much they owe.  Consumers may also unintentionally  
          yield their rights, by waiving the statute of limitations on  
          debt claims for which the relevant limit periods have expired.   
          "Whether or not consumers owe and are liable for the debts  
          collectors are attempting to recover, unlawful collection  
          practices can cause significant reputational damage, invade  
          personal privacy, and inflict emotional distress.  Among the  
          possible consequences, a collector's inappropriate interference  

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          with a consumer's employment relationships can also impair the  
          consumer's ability to repay debts."

          Although federal and state laws already exist to protect  
          consumers from such harms, several interested parties, including  
          FTC and this bill's sponsor, believe that existing law is  
          inadequate, and that more needs to be done to protect consumers.  
            

           Comments
           
          According to the author's office, the debt buying industry has  
          become a significant focus of public concern, related, in part,  
          to the inadequacy of documentation maintained by the industry in  
          support of its debt collection activities and litigation.  There  
          have been widespread accounts of debt buyer collection efforts,  
          including collection litigation, against the wrong person, or  
          targeting debt that is time-barred or has already been paid.   
          Collection efforts have become increasingly misdirected, as  
          consumer debt is sold and resold, repeatedly, without reliable  
          documentation evidencing its origin.

          This bill is intended to provide better documentation of alleged  
          debts to consumers who are contacted by debt collectors, and to  
          reduce the occurrence of debt collection activities directed  
          toward time-barred debt, or to the wrong person, or both.  It  
          does so by establishing clear, enforceable standards governing  
          the documentation required to support the collection of  
          purchased delinquent or charged-off debt, particularly in  
          collection litigation.  

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

           SUPPORT  :   (Verified  5/9/13)

          Attorney General Kamala Harris (source) 
          AARP
          California State Council of the SEIU
          Center for Responsible Lending
          Consumers Union
          East Bay Community Law Center
          Encore Capital Group
          Public Law Center of Orange County

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           ARGUMENTS IN SUPPORT  :    The Attorney General's interest in the  
          area stems from industry practices, which are causing collection  
          efforts to be directed toward the wrong consumer, or toward the  
          collection of debt that is time-barred or has been paid.  The  
          Attorney General's concerns are compounded, because a very high  
          percentage of debt collection litigation result in default  
          judgments, where consumers do not appear to present whatever  
          defenses may be available to them.  

          Consumers Union and the Center for Responsible Lending write  
          that this bill is sorely needed.  "Tens of thousands of  
          Californians are contacted every year by debt buyers they have  
          never done business with, for debts that may be old or in an  
          amount that doesn't match the consumer's memory or records.  The  
          debt may even be owed by someone else or the result of identity  
          theft.  Yet, some debt buyers have little more than a  
          robo-signed affidavit to back up their claims in court."  This  
          bill will help consumers and courts determine if the consumer  
          is, in fact, the person who incurred the debt.  To ensure  
          fairness in all civil collections cases, this bill requires debt  
          buyers to show how the debt was calculated, including the  
          original amount and the nature and type of post charge-off fees  
          and charges.  This is a protection that does not currently exist  
          for persons who are sued on a debt.  


          MW:nk  5/9/13   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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