BILL ANALYSIS Ó
SB 233
Page 1
SENATE THIRD READING
SB 233 (Leno and Correa)
As Amended May 15, 2013
Majority vote
SENATE VOTE :36-0
JUDICIARY 9-0 BANKING & FINANCE 10-0
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|Ayes:|Wieckowski, Wagner, |Ayes:|Dickinson, Morrell, |
| |Alejo, Chau, Dickinson, | |Achadjian, Blumenfield, |
| |Garcia, Maienschein, | |Bonta, Chau, Gatto, |
| |Muratsuchi, Stone | |Linder, Perea, Weber |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Enacts the Fair Debt Buyers Practices Act, imposing
various requirements on practices that may be used to collect on
purchased consumer debt. Specifically, this bill :
1)Prohibits a debt buyer from making any written statement in an
attempt to collect a consumer debt unless the debt buyer
possesses certain information, including, among other things:
a) the debt balance at charge off; b) the date of default or
last payment; c) the name and address of the charge-off
creditor at the time of charge off, and all persons or
entities that purchased the debt after charge off; and d) a
statement that the buyer is the sole owner of the debt or has
authority to assert the rights of all owners of the debt.
2)Prohibits a debt buyer from making 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, or if
no signed contract exists, demonstrating that the debt was
incurred by the debtor.
3)Requires a debt buyer to provide all of the above information
or documents 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, or to cease all
collection of the debt until the debt buyer provides the
information or documents to the debtor.
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4)Requires the debt buyer to provide a specified written notice
with its initial written communication to the debtor that,
among other things, informs the debtor of his or her right to
request records from the debt buyer showing information that
the debt buyer is required to possess as a condition of
collecting on the debt.
5)Prohibits a debt buyer from bringing suit, initiating another
proceeding, or taking any other action to collect a consumer
debt if the applicable statute of limitations on the cause of
action has expired.
6)Requires specific information regarding the underlying debt,
the debt buyer, the debtor, and charge-off creditors to be so
stated in any action brought by a debt buyer on a consumer
debt.
7)Provides that in an action initiated by a debt buyer, no
default of other judgment may be entered against a debtor
unless the following authenticated documents have been
submitted by the debt buyer to the court:
a) Business records establishing facts about the debt,
debtor, and charge-off creditors that are required by this
act to be alleged in the complaint; and
b) A copy of a contract or other document evidencing the
debtor's agreement to the debt, or if no signed contract
exists, demonstrating that the debt was incurred by the
debtor.
8)Provides that, in an action brought by an individual, a debt
buyer who violates any provision of this act with respect to
any person is liable to the person in an amount equal to the
sum of the following: a) actual damages sustained as a result
of the violation; b) statutory damages, as specified for an
individual or class action; and c) costs of the action and
reasonable attorney's fees.
9)Relieves a debt buyer from any liability under this act if the
debt buyer shows by a preponderance of the evidence that the
violation was not intentional and resulted from a bona fide
error, and occurred notwithstanding the maintenance of
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procedures reasonably designed to avoid any such error.
10)Provides that these requirements shall only apply to debt
buyers with respect to all consumer debt sold or resold on or
after January 1, 2014.
11)Requires a claim of exemption and related financial statement
form to be provided to a judgment debtor by the levying
officer whenever a writ of execution or an earnings
withholding order is served upon the judgment debtor or the
debtor's employer, as specified.
FISCAL EFFECT : None
COMMENTS : This bill, sponsored by Attorney General Kamala
Harris, seeks to enact the Fair Debt Buyer Practices Act, a
comprehensive approach to address problems that, according to
bill proponents, are largely traceable to the inadequacy of
documentation maintained by the debt buying industry to support
its debt collection activities and litigation. According to the
author, "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. This bill establishes a number of reforms to
ensure that the documentation used to support the collection of
purchased debt is sufficient. This will help ensure that
collection efforts target the correct individuals, avoid
litigation over time-barred debt, and that the amount of the
debt is calculated accurately."
According to proponents, California's courts are swamped with
debt collection lawsuits at a time that could not be worse given
recent court closures and the fiscal crisis facing our judicial
system. A recent New York Times article reported that
collection lawsuits across California have increased by 20% over
the past five years, with an estimated 96,000 consumer debt
collection cases filed in three Bay Area counties in 2009 alone,
up from 53,700 cases in 2007. ("Some Lawyers Want to Keep Debt
Collection Out of the Courts," NY Times, April 22, 2010.)
Proponents contend that many of these lawsuits are simply
unsubstantiated by facts necessary to determine, among other
things, that the plaintiff owns the debt at issue, that the
defendant is the person who truly owes the debt, or that the
debt is not time-barred.
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Furthermore, according to the author, many consumers report
being the subject of collection lawsuits where there is
insufficient evidence of the consumer's underlying indebtedness,
or where not enough information is provided to the consumer
regarding the debt at issue to allow an appropriate answer to
the complaint. A recent report by Consumers Union and East Bay
Community Law Center (EBCLC) found that debt buyers frequently
buy portfolios of individual consumer debts with inadequate
information, and frequently sue without any proof that they own
the debts or that the consumer owes them money. ("Past Due: Why
Debt Collection Practices and the Debt Buying Industry Need
Reform Now," Consumers Union, January 2011.)
Accordingly, this bill prohibits a debt buyer from contacting a
debtor unless the debt buyer has access to a copy of a contract
or other document evidencing the debtor's agreement to the debt
or responsibility for incurring the debt, as well as other
specific factual information establishing the buyer's right to
collect. This essential factual information includes, among
other things, the debt balance at charge off, the date of
default or last payment, and the names and addresses of the
charge-off creditor, debt buyer, and debtor as they appear in
the records of the debt. The bill also requires the debt buyer
to provide the information or documents to the debtor without
charge within 15 days upon request of the debtor, and to include
a specified notice informing the debtor of this right. These
requirements seek to ensure that the consumer will at least have
basic information about the debt in question that is necessary
to determine a next step, including filing an answer if a
complaint has been served.
In 2011, the Federal Trade Commission (FTC) issued an extensive
report in which it found that complaints filed by debt
collectors to initiate collection actions against debtors do not
provide sufficient information to the defendant-debtor or the
court about the underlying debt or the collector's right to
collect. To address these problems identified by the FTC, this
bill promotes greater transparency and clarity with respect to
the allegations required in a lawsuit filed by a debt buyer, as
well as the evidence required of a debt buyer to obtain a
judgment in a collection suit. First, the bill requires the
complaint in any collection suit to allege, among other things,
the nature of the underlying debt and the consumer transactions
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from which it is derived, and that the debt buyer is the sole
owner of the debt at issue or has the right to collect the debt.
The complaint shall also allege the same specific factual
information about the debt that the debt buyer is required to
possess in order to initiate a written contact with the debtor.
According to the FTC, about 95% of collection lawsuits end in
default judgments, which the author contends is the business
model for some debt buyers who file thousands of collection
lawsuits each year. The FTC's report noted concern about the
number of default judgments, and recommended that states take
steps to "increase consumer participation in debt collection
litigation to help decrease the prevalence of default
judgments." Accordingly, this bill would prohibit entry of a
default or other judgment against the debtor unless the debt
buyer submits to the court: 1) authenticated business records
establishing the factual information about the debt that the
debt buyer is required to possess and allege in the complaint;
and 2) a copy of a contract or other document evidencing the
debtor's agreement to the debt, or responsibility for incurring
the debt. In addition, if a debt buyer seeks a default judgment
but has not complied with the requirements of this bill, the
bill would prohibit the court from entering a default judgment
for the debt buyer and allow the court, in its discretion, to
dismiss the action. This provision seeks to provide a strong
incentive for the debt buyer to provide all required information
to the court prior to pursuing a default judgment.
As a practical matter, it is expected that many consumers would
not be able to find an attorney to represent them in collection
matters, or cannot afford attorney fees. Proponents contend,
quite reasonably, that in collection suits where the debt buyer
cannot provide adequate information to prove that the consumer
actually owes the debt alleged, the consumer should not have a
default judgment entered against him simply because he is
unsophisticated or could not afford legal representation. This
bill seeks to end that basic unfairness in collection cases
where the debt buyer does not substantiate or support his claim
with adequate information.
The FTC's report also expressed concern that certain collectors
"regularly sue consumers on time-barred debts." This practice
is likely to continue as long as many consumers do not defend
suits against them, even when the action would be barred by the
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statute of limitations, because they do not know or realize that
this is the case. According to the FTC, "Because an expired
statute of limitations is an affirmative defense in most states,
collectors have no obligation to allege in the complaint that
the debt is not time-barred, and many collectors do not include
this information. If consumers do not defend, there is no one
to raise the defense that the debt is time-barred . . . Even if
a debt collection action appears to be time-barred, it would be
improper for courts to consider affirmative defenses that no
party had raised. As a result, some courts appear to be
granting default judgments on time-barred debt." (FTC Report,
July 2010.)
To address this concern, this bill expressly prohibits a debt
buyer from bringing suit or initiating arbitration or any other
legal proceeding to collect a consumer debt if the applicable
statute of limitations on the debt buyer's claim has expired.
This common-sense restriction helps protect consumers from
litigation on debts they have no legal obligation to pay, which
as EBCLC notes, may include debts resulting from identity theft,
mistake, and debts already paid, in addition to debts barred by
statutes of limitations.
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334
FN: 0001309