BILL ANALYSIS Ó AB 1723 Page 1 Date of Hearing: April 26, 2016 ASSEMBLY COMMITTEE ON JUDICIARY Mark Stone, Chair AB 1723 (Dodd) - As Amended March 28, 2016 SUBJECT: DEBT COLLECTION: IDENTITY THEFT KEY ISSUE: IN ORDER TO STREAMLINE RESOLUTION OF IDENTITY THEFT DISPUTES, SHOULD a debt collector face tighter deadlines for investigating a debtor's claim of identity theft and for notifying the debtor and credit reporting agency of the results of the investigation? SYNOPSIS According to the author, identity thieves can wreak havoc on a consumer's credit profile by opening new credit accounts and taking out unauthorized loans using the consumer's stolen identity. The debts incurred in this manner often end up in debt collection, and victims of identity theft may be repeatedly contacted by debt collectors and have adverse information reported on their credit reports as a result of the identity theft. Many victims only become aware of the crime months after the crime, when their accounts go into collection. Many consumers who submit a dispute to a debt collector often find that their dispute goes into a "black hole." They report that they never hear back from the debt collector and it may take many months for fraudulent accounts to be removed from the victims' credit reports, causing even greater damage to their AB 1723 Page 2 credit. This bill seeks to establish deadlines for debt collectors to investigate identity theft disputes and notify victims of identity theft, creditors, and credit reporting agencies of the outcome of the investigations. Among other things, this bill requires a debt collector that has reported adverse information about a debtor to a consumer credit reporting agency to notify the agency that the account is disputed, and initiate a review within 10 business days of receiving a written statement by the debtor and other documentation supporting a claim of identity theft. The bill also requires that a debt collector must notify creditors that debt collection activities must be terminated no later than 10 business days after making a determination to cease collection activities because of identity theft. The bill is sponsored by Encore Capital, a large debt-buying company based in San Diego, and reflective of its pro-consumer stance is supported by Attorney General Kamala Harris and the Consumer Attorneys of California. The bill has no known opposition and previously passed the Assembly Banking & Finance Committee by a 12-0 vote. SUMMARY: Establishes firmer deadlines for debt collectors to investigate identity theft disputes and to notify victims of identity theft, their creditors, and credit reporting agencies of the outcome of the investigation. Specifically, this bill: 1)Requires a debt collector that has reported adverse information about a debtor to a consumer credit reporting agency (CCRA), to notify the agency that the account is disputed, and initiate a review within 10 business days of receiving a written statement and other documentation supporting a claim of identity theft by the debtor. 2)Provides that a debt collector shall send notice of its determination to the debtor no later than 10 business days after concluding the review. AB 1723 Page 3 3)Provides that if the debt collector had furnished adverse information about the debtor to a credit reporting agency, then the debt collector must notify the agency to delete the adverse information no later than 10 business days after making a determination to cease collection activities in the case of identity theft. 4)Requires that a debt collector notify creditors that debt collection activities have been terminated no later than 10 business days after making a determination to cease collection activities in the case of identity theft. 5)Provides that a creditor shall not pursue further collections against or sell a consumer debt of a debtor once debt collection activities have been terminated based upon the debtor's claim of identity theft. EXISTING LAW: 1)Requires a debt collector to cease collection activities, until completion of a specified review process, upon receipt from a debtor of all of the following: a) A copy of a police report filed by the debtor alleging that the debtor is the victim of an identity theft crime, including, but not limited to, a violation of Section 530.5 of the Penal Code, for the specific debt being collected by the debt collector. b) The debtor's written statement that the debtor claims to be the victim of identity theft with respect to the AB 1723 Page 4 specific debt being collected by the debt collector. (Civil Code Section 1788.18 (a). All further references are to this code unless otherwise stated.) 2)Provides that the debtor's written statement above shall consist of any of the following: a) A Federal Trade Commission's Affidavit of Identity Theft. b) A written statement that contains the content of the Identity Theft Victim's Fraudulent Account Information Request offered to the public by the California Office of Privacy Protection. c) A written statement that certifies that the representations are true, correct, and contain no material omissions of fact to the best knowledge and belief of the person submitting the certification, to be accompanied by additional documentation including, but not limited to: (1) A copy of the debtor's driver's license or state identification card; (2) Specific facts supporting the claim of identity theft, if available; (3) Any explanation showing that the debtor did not incur the debt; (4) Any available correspondence disputing the debt after transaction information has been provided to the debtor; and (5) Copies of bills and statements showing that the debtor lived at another residence at the time the debt was incurred. (Section 1788.18 (b).) 3)Requires the debt collector to review and consider all of the information provided by the debtor and other information available to the debt collector in its file or from the creditor, and permits the debt collector to recommence debt collection activities only upon making a good faith determination that the information does not establish that the AB 1723 Page 5 debtor is not responsible for the specific debt in question. (Section 1788.18 (d).) 4)Requires the debt collector to notify the debtor in writing of that determination and the basis for that determination before proceeding with any further collection activities, and further requires this determination to be based on all of the information provided by the debtor and other information available to the debt collector in its file or from the creditor. (Section 1788.18 (d).) 5)Provides that no inference or presumption that the debt is valid or invalid, or that the debtor is liable or not liable for the debt, shall arise if the debt collector decides after the review to cease or recommence the debt collection activities. Further provides that the exercise or nonexercise of rights under this section is not a waiver of any other right or defense of the debtor or debt collector. (Section 1788.18 (e).) 6)Requires a debt collector who ceases collection activities under these provisions and does not recommence those collection activities to do all of the following: a) If the debt collector has furnished adverse information to a consumer credit reporting agency, notify the agency to delete that information. b) Notify the creditor that debt collection activities have been terminated based upon the debtor's claim of identity theft. (Section 1788.18 (g).) FISCAL EFFECT: As currently in print this bill is keyed non-fiscal. COMMENTS: This bill seeks to streamline the resolution of AB 1723 Page 6 identity theft disputes, in response to reports that too many consumers have difficulty getting debt collectors to investigate and respond to their documentation establishing a claim of identity theft. To accomplish this, the bill seeks to establish firm 10-day deadlines for debt collectors to investigate identity theft disputes and to notify victims of identity theft, their creditors, and credit reporting agencies of the outcome of the investigation. The author explains the need for the bill as follows: Identity theft is a critical issue for many California consumers. [. . .] Today, many victims become aware of the crime, months later, when their accounts go into collection. Many consumers who submit a dispute to a debt collector often find that their dispute goes into a "black hole." Many victims never hear back from the debt collector, and it may take many months for the fraudulent account to be removed from the victims' credit reports. This delay causes even greater damage to a victim's credit which can prevent him or her from obtaining consumer and home loans. In addition, victims suffer needless stress endlessly trying to stop unwarranted collection. Consumers need more certainty and information in the process of resolving disputed debts when the disputes result from identity theft. AB 1723 would establish reasonable timeframes for debt collectors to initiate investigations, update or delete adverse information on the consumer's credit report, and respond to consumers regarding the outcome of their investigation. This bill establishes quicker timelines that streamline the process of investigating and resolving identity theft matters. According to the author, California law does not impose adequate timelines upon debt collectors to review and resolve identity theft claims, and as a result, consumers may be subject to AB 1723 Page 7 months of improper collection and credit reporting activities that could otherwise be avoided. Current federal law effectively provides a floor by establishing a 30-day timeframe for investigations of disputed debts (15 U.S.C. 1692g). This bill improves upon this by requiring debt collectors to initiate an investigation within ten business days of receiving a report from a consumer with the identity theft information set forth in Section 1788.18. If the debt collector has furnished adverse information about the debtor to a credit reporting agency, this bill would impose a ten-business day timeline for the debt collector to notify the credit reporting agency that the account is disputed. According to the sponsor, this notification process takes some debt collectors up to 60 days, so this bill establishes a much quicker deadline for providing such notification to the credit reporting agency. Finally, this bill would require the debt collector, after concluding its review of the consumer's information, to notify the consumer of its decision about the validity of his or her claim, regardless of the outcome. Current law unfortunately only requires notification when the debt collector determines the claim is invalid and seeks to recommence debt collection activities. This bill provides additional notification to consumers and prevents further collection by creditors when identity theft or fraud is verified. This bill also revises the process that applies when a debt collector has found merit to the debtor's claim of identity theft and ceased collection activities. First, if the debt collector had furnished adverse information about the debtor to a credit reporting agency, then current law requires the debt collector to notify the agency to delete the adverse information, but does not specify a timeline for when such notification must be made. In the meantime, the adverse credit information potentially wreaks havoc upon the victim of identity theft. (Section 1788.18 (g)(1).) To address this problem, this bill establishes that the agency must be notified to delete that information no later than 10 business days after the debt collector makes its determination. Second, current law requires only that creditors be notified that debt collection activities have been terminated based upon the debtor's claim of AB 1723 Page 8 identity theft, but does not specify when this notification must take place. (Section 1788.18 (g)(2).) This bill would ensure that creditors receive this notification within ten business days. Finally, the bill also prohibits a creditor that has been notified that collection activities have been terminated pursuant to a consumer's claim of identity theft from pursuing further collections on or selling the debt if the consumer is a victim of identity theft. REGISTERED SUPPORT / OPPOSITION: Support Attorney General Kamala Harris California Association of Collectors Consumer Attorneys of California Contra Costa District Attorney's Office Encore Capital Napa County District Attorney's Office Sonoma County District Attorney's Office Yolo County District Attorney's Office Support (if amended) AB 1723 Page 9 California Bankers Association Opposition None on file Analysis Prepared by:Anthony Lew / JUD. / (916) 319-2334