BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
AB 1723 (Dodd)
Version: May 31, 2016
Hearing Date: June 28, 2016
Fiscal: No
Urgency: No
TH
SUBJECT
Debt Collection
DESCRIPTION
Existing law requires a debt collector, upon receiving specified
information that a consumer has become the victim of identity
theft and that the debt being collected is not the
responsibility of the consumer, to cease collection activities
until reviewing the validity of the debt. In the course of its
review, a debt collector must consider all of the information
provided by the debtor and other information available to the
debt collector in its file or from the creditor as to whether
the consumer is responsible for the specific debt in question.
This bill would specify that a debt collector shall initiate its
review of an account within 10 business days of receiving
specified information that a consumer has become the victim of
identity theft and that the debt being collected is not the
responsibility of the consumer. This bill would additionally
require the debt collector to notify, within 10 business days,
any consumer credit reporting agency to which the debt collector
furnished adverse information pertaining to a creditor's account
that the account is disputed. This bill would require the debt
collector to send notice of its determination to the debtor no
later than 10 business days after concluding the review, and
would prohibit a creditor from pursuing further collections on
the debt or selling the debt to a debt collector if the creditor
receives notice that debt collector has terminated debt
collection activities pursuant to its review of the account.
AB 1723 (Dodd)
Page 2 of ?
BACKGROUND
According to the Federal Trade Commission's (FTC) "Consumer
Sentinel Network Data Book for January - December 2015,"
California had more identity theft complaints-55,305-than any
other state. For every 100,000 people in California, there were
141.3 identity theft complaints. Nationwide, identity theft has
increased more than five-fold during the past 15 years, with the
FTC receiving almost a half-million complaints from consumers in
2015 alone. (Federal Trade Commission, Consumer Sentinel
Network Data Book for January - December 2015 (Feb. 2016)
[as of June 1, 2016].)
Identity theft victims' information can be misused in numerous
ways. One of the most common is the creation of new accounts,
including credit card, utility, or wireless telephone accounts.
But, victims' information can also be used in other, equally
nefarious ways. As the Federal Trade Commission notes:
Once identity thieves have your personal information, they can
drain your bank account, run up charges on your credit cards,
open new utility accounts, or get medical treatment on your
health insurance. An identity thief might even file a tax
return in your name and get your refund. In some extreme
cases, a thief might even give your name to the police during
an arrest. (Federal Trade Commission, Taking Charge: What To
Do If Your Identity Is Stolen (Apr. 2013)
[as of
June 1, 2016].)
In 2003, the Legislature passed AB 1294 (Wiggins, Ch. 287,
Stats. 2003), which required a debt collector to stop collecting
a consumer's debt if an alleged debtor provides the collector
with specified information showing that the debtor is a victim
of identity theft. This bill enhances that provision by
requiring a debt collector to initiate a review of a consumer's
allegation within 10 days of receipt, and notify credit agencies
that a debt is being contested. If debt collection activities
are terminated based upon a debtor's claim of identity theft,
this bill would prohibit the creditor from pursuing further
collection of the debt or from selling the debt to another
party.
AB 1723 (Dodd)
Page 3 of ?
CHANGES TO EXISTING LAW
Existing law , the California Consumer Credit Reporting Agencies
Act (Civ. Code Sec. 1785.1 et seq.) and the Federal Fair Credit
Reporting Act (15 U.S.C. Sec. 1681 et seq.), require consumer
credit reporting agencies to adopt reasonable procedures for
meeting the needs of commerce for consumer credit, personnel,
insurance, hiring of a dwelling unit, and other information in a
manner which is fair and equitable to the consumer, with regard
to the confidentiality, accuracy, relevancy, and proper
utilization of such information. (Civ. Code Sec. 1785.1(d); 15
U.S.C. Sec. 1681(b).)
Existing law permits a consumer to place a "security freeze" on
his or her credit report, prohibiting consumer credit reporting
agencies from releasing the consumer's credit report or any
information contained in it unless the consumer expressly
authorizes the release. (Civ. Code Sec. 1785.11.2(a).)
Existing law requires a debt collector to cease collection
activities until completion of a specified review upon receipt
from a debtor of both of the following:
a copy of a police report filed by the debtor alleging that
the debtor is the victim of an identity theft crime for the
specific debt being collected by the debt collector; and
a debtor's written statement that the debtor claims to be the
victim of identity theft with respect to the specific debt
being collected by the debt collector, as specified. (Civ.
Code Sec. 1788.18(a).)
Existing law specifies that upon receipt of the information
described above, the debt collector shall 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. The debt collector may recommence debt collection
activities only upon making a good faith determination that the
information does not establish that the debtor is not
responsible for the specific debt in question. (Civ. Code Sec.
1788.18(d).)
Existing law specifies 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
AB 1723 (Dodd)
Page 4 of ?
activities. (Civ. Code Sec. 1788.18(e).)
Existing law states that a debt collector who ceases collection
activities and does not recommence those collection activities
shall do all of the following:
if the debt collector has furnished adverse information to a
consumer credit reporting agency, notify the agency to delete
that information; and
notify the creditor that debt collection activities have been
terminated based upon the debtor's claim of identity theft.
(Civ. Code Sec. 1788.18(g).)
This bill specifies that a debt collector shall initiate its
review to consider all of the information provided by the debtor
and other information available to the debt collector in its
file or from the creditor within 10 business days of receiving
the information.
This bill specifies that within 10 business days of receiving
the information, the debt collector shall notify a consumer
credit reporting agency that an account is disputed if the debt
collector furnished the agency adverse information about the
debtor.
This bill specifies that the debt collector shall send notice of
its determination to the debtor no later than 10 business days
after concluding its review.
This bill states that a debt collector who ceases and does not
recommence collection activities in response to debtor's claims
to be the victim of identity theft with respect to the specific
debt being collected shall do all of the following:
if the debt collector has furnished adverse information to a
consumer credit reporting agency, notify the agency to delete
that information no later than 10 business days after making
its determination; and
notify the creditor no later than 10 business days after
making its determination that debt collection activities have
been terminated based upon the debtor's claim of identity
theft.
This bill prohibits a creditor from pursuing further collections
against a consumer or selling a debt for which the creditor has
received a notice from a debt collector indicating that debt
collection activities have been terminated based upon the
AB 1723 (Dodd)
Page 5 of ?
debtor's claim of identity theft.
COMMENT
1.Stated need for the bill
The author writes:
Current law does not provide any timeframes for
investigations, or notification to the victim or the creditor
about the outcome of the investigation. Furthermore, current
law does not prohibit creditors from pursuing further
collections on the debt or selling the debt to a different
debt collector after debt collection was ceased by a debt
collector.
AB 1723 would require debt collectors, upon receipt of
appropriate documentation, to take several steps within 10
business days, including initiating an investigation of the
dispute, and notifying the consumer credit reporting agency of
the dispute if the account is being credit reported. [This
bill] would require that a debt collector, within 10 business
days of its determination, delete any adverse information
furnished to a consumer credit reporting agency and notify the
creditor that the collection activities have been terminated
based upon the debtor's claim of identity theft. [This bill]
would require a debt collector to send notice of its
determination to a consumer no later than 10 business days
after concluding its review. The bill would also prohibit a
creditor, upon receiving notice that the debt collector has
terminated collection activities, from pursuing further
collections on the debt or selling the debt to a debt
collector.
2.Protecting victims of identity theft
This bill would help victims of identity theft avoid some of the
negative financial impacts associated with that crime by
enhancing existing protections victims have from being subjected
to collection activities based on fraudulent debt. Under
existing law, a victim of identity theft can challenge the
collection of a fraudulent debt by submitting specified
information to a debt collector demonstrating the fraudulent
nature of the debt, and existing law requires debt collectors to
both investigate a debtor's claims and cease collection
AB 1723 (Dodd)
Page 6 of ?
activities while that investigation is underway. This bill
would add specified timelines to this process by requiring a
debt collector to initiate its review of the debtor's claim and
inform consumer credit reporting agencies that a debt is being
contested within 10 days of receiving the substantiating
information from the debtor. This bill would also require a
debt collector to convey to the debtor, the creditor, and the
credit reporting agencies, its findings relative to the
allegations of fraud within 10 days of concluding its review, as
specified. Together, these specified timeframes should help
drive the review process forward, and eliminate the uncertain
timing of events arguably present in existing law. As Encore
Capital Group, writing in support, states, "[t]hese changes to
current consumer protection laws will ensure that victims of
identity theft are able to clear up their credit more quickly,
and will raise collection industry standards in responding to
and investigating consumer disputes of fraud or identity theft."
3.Collection of fraudulent debt
In addition to clarifying the timeline associated with a debt
collector's investigation of allegedly fraudulent debt, this
bill would restrict the ability of creditors to sell or seek
future collection on debts determined to be fraudulent through a
debt collector's review process. Under existing law, debt
collectors who cease collection activities of a debt alleged to
be the result of identity theft must both notify the creditor
that debt collection activities have been terminated based upon
the debtor's claim of identity theft, and notify consumer credit
reporting agencies to delete adverse information furnished by
the debt collector pertaining to the fraudulent debt. This bill
would additionally restrict creditors from both pursuing further
collections against the consumer and selling the debt to another
party upon receipt of notification from a debt collector that
collection activities were terminated based upon the debtor's
claim of identity theft. While this would certainly help
consumers avoid collection activities based upon fraudulent
debt, allowing a third party debt collector to unilaterally
determine the validity of a creditor's debt without further
review could infringe on that creditor's property and due
process rights. To address this concern, the Committee may wish
to consider the following amendments which would strike this
provision from the bill and instead prevent creditors from
marketing questionable debt to other debt collectors. These
amendments would not negate the property interest a creditor may
AB 1723 (Dodd)
Page 7 of ?
have in the questionable debt.
Suggested Amendments :
On page 5, strike lines 21 through 23.
On page 5, following line 35, insert:
Sec. 3. Section 1785.16.2 of the Civil Code is amended to
read:
1785.16.2. (a) No creditor may sell a consumer debt to a
debt collector, as defined in 15 U.S.C. Sec. 1692a, if the
consumer is a victim of identity theft, as defined in
Section 1798.2, and with respect to that debt, the creditor
has received notice pursuant to subdivision (k) of Section
1785.16, or subdivision (g)(2) of 1788.18 .
(b) Subdivision (a) does not apply to a creditor's sale of
a debt to a subsidiary or affiliate of the creditor, if,
with respect to that debt, the subsidiary or affiliate does
not take any action to collect the debt.
(c) For the purposes of this section, the requirement in 15
U.S.C. Sec. 1692a, that a person must use an
instrumentality of interstate commerce or the mails in the
collection of any debt to be considered a debt collector,
does not apply.
Support : California Association of Collectors; California
Attorney General; California Police Chiefs Association; Consumer
Attorneys of California; Contra Costa District Attorney's
Office; Encore Capital Group; Los Angeles County Board of
Supervisors; Napa County District Attorney's Office; Privacy
Rights Clearinghouse; Sonoma County District Attorney's Office;
Yolo County District Attorney's Office
Opposition : None Known
HISTORY
Source : Author
Related Pending Legislation : AB 1580 (Gatto, et. al., 2016)
would require a consumer credit reporting agency to place a
security freeze on the credit file of a protected consumer upon
AB 1723 (Dodd)
Page 8 of ?
the request of, and submission of specified information by, the
protected consumer's representative. This bill would define a
protected consumer as any of the following: an individual who is
under 16 years of age at the time a request for the placement of
a security freeze is made; an incapacitated person or a
protected individual for whom a guardian or conservator has been
appointed; or a person under the jurisdiction of a county
welfare department or county probation department who has been
placed in a foster care setting and is under 16 years of age at
the time a request for a security freeze is made. This bill is
pending in the Senate Judiciary Committee.
Prior Legislation :
SB 641 (Wieckowski, Ch. 804, Stats. 2015) added a provision to
the Fair Debt Buying Practices Act to provide consumers, in
limited circumstances involving actions brought by debt buyers,
extended time to file a motion to set aside a default or default
judgment and for leave to defend an action relating to debt, if
the service of summons did not result in actual notice to the
consumer in time to defend the action.
AB 2374 (Hernandez, Ch. 645, Stats. 2012) prohibited credit
reporting agencies from charging specified consumers any fee for
the initial placement of a security freeze, but authorized such
agencies to charge a fee of up to $5 for lifting, removing, or
replacing a security freeze.
AB 372 (Salas, Ch. 151, Stats. 2008) permitted a credit
reporting agency to charge a fee of no more than $5 to a
consumer 65 years of age or older and no more than $10 to other
consumers for a request for a security freeze, removal of the
freeze, or temporary lifting of the freeze for a period of time
or for a specific party.
AB 2043 (Banking and Finance Committee, Ch. 521, Stats. 2006)
authorized specified business entities that become the victims
of identity theft to utilize debt relief protections available
to natural persons who are victimized by identity theft.
AB 1294 (Wiggins, Ch. 287, Stats. 2003) required a debt
collector to stop collecting a consumer's debt if an alleged
debtor provides the collector with specified information showing
that the debtor is a victim of identity theft, as specified.
SB 168 (Bowen, Ch. 720, Stats. 2001) gave California consumers
AB 1723 (Dodd)
Page 9 of ?
the right to place a freeze on their credit reports, which,
while in place, prohibits a credit reporting agency from
releasing the consumer's credit report without the express
authorization of the consumer.
AB 156 (Murray, Ch. 768, Stats. 1997) formally recognized
identity theft as a crime, providing that it is a misdemeanor
for a person to willfully obtain personal identifying
information of another and use that information to obtain, or
attempt to obtain, credit, goods, or services in the name of the
another person without the consent of that person.
Prior Vote :
Assembly Floor (Ayes 77, Noes 0)
Assembly Judiciary Committee (Ayes 10, Noes 0)
Assembly Banking and Finance Committee (Ayes 12, Noes 0)
**************