BILL ANALYSIS �
-----------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 233|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
-----------------------------------------------------------------
THIRD READING
Bill No: SB 233
Author: Leno (D), et al.
Amended: 5/15/13
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 buying
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 debt, as defined.
Senate Floor Amendments of 5/15/13 add coauthors, define
"charged-off consumer debt," and add intent language.
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
CONTINUED
SB 233
Page
2
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
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 debt for collection purposes.
2. Defines the following terms:
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.
B. "Charged-off consumer debt" as a consumer debt that has
been removed from a creditor's books as an asset and
treated as a loss or expense.
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
CONTINUED
SB 233
Page
3
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
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
CONTINUED
SB 233
Page
4
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.
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
CONTINUED
SB 233
Page
5
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.
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
CONTINUED
SB 233
Page
6
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
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.
3. States legislative findings, declarations, and intent
relating to the collection and litigation of consumer debt.
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.
CONTINUED
SB 233
Page
7
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
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.
CONTINUED
SB 233
Page
8
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
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 5/16/13 Senate Floor Analyses
CONTINUED
SB 233
Page
9
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
CONTINUED