BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015 - 2016 Regular Session
SB 641 (Wieckowski)
Version: February 27, 2015
Hearing Date: April 21, 2015
Fiscal: Yes
Urgency: No
RD
SUBJECT
Debt buying: default judgment
DESCRIPTION
Existing law provides that when service of a summons has not
resulted in actual notice to a party in time to defend the
action and a default or default judgment has been entered
against him or her in the action, that party may serve and file
a notice of motion to set aside the default or default judgment
and for leave to defend the action, as specified. Existing law
requires that the notice of this motion be served and filed
within a reasonable time, but in no event exceeding the earlier
of: (1) two years after entry of a default judgment against him
or her; or (2) 180 days after service on him or her of a written
notice that the default or default judgment has been entered.
This bill would add a provision to the Fair Debt Buying
Practices Act (FDBPA) to provide that, notwithstanding the
above, if a service of summons has not resulted in actual notice
to a debtor in time to defend an action brought by a third party
debt buyer and a default or default judgment has been entered
against the debtor in the action, the debtor may serve and file
a notice of motion and a motion to set aside the default or
default judgment and for leave to defend the action within 180
days of the first actual notice of the action, as specified.
This bill would provide that this extended timeline to file a
notice of motion and motion to set aside the default or default
judgment would apply to debt buyers with respect to all consumer
debt, regardless of the date it was sold, despite the limited
application of the FDBPA to debt buyers with respect to all
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consumer debt sold or resold on or after January 1, 2014.
BACKGROUND
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. The Federal Trade Commission (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. (Federal Trade Commission, Repairing a
Broken System (July 2010) [as of Apr. 9, 2015]
at p. i.) The FTC noted that:
. . . very few consumers defend or otherwise participate in
debt collection litigation. The Commission therefore
recommends state and local governments consider making a
variety of reforms to service of process, pleading, and
court rules and practices to increase the ability of
consumers to defend or otherwise participate in debt
collection litigation. The report also finds complaints and
attachments in debt collection cases often do not provide
adequate information for consumers to answer complaints or
for judges to rule on motions for default judgment. The FTC
therefore recommends that courts more rigorously apply
existing rules to require that collectors provide adequate
information and that jurisdictions consider adopting rules
mandating the information which must be included in or
attached to the complaint. The report additionally finds
that state statutes of limitations on filing actions to
recover on debt are sometimes variable and complex, and
generally not understood by consumers. The Commission
suggests that states consider modifying their laws to make
it simpler to determine the applicable statute of
limitations, and to require that collectors provide
consumers with important information about their legal
rights when collecting debt they know or should know is
time-barred. (Id. at p. 2.)
Additionally, on October 24, 2012, the federal Consumer
Financial Protection Bureau (CFPB) published a rule to allow the
agency to federally supervise the larger consumer debt
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collectors. (CFPB, Consumer Financial Protection Bureau to
Oversee Debt Collectors (Oct. 24, 2012)
[as of Apr. 9, 2015].)
The CFPB noted that, "[a]pproximately 30 million Americans
have, on average, $1,500 of debt subject to collection. Debt
collectors often report consumers' collection status to the
credit bureaus. If they get the information wrong, this can be
the difference between getting approved or denied for such
financial products as a mortgage or a car loan."
As a matter of state law, in response to these and other issues
concerning debt buying practices, the Legislature enacted SB 233
(Leno, Ch. 64, Stats. 2013), the Fair Debt Buying Practices Act,
to further regulate the activities of persons and entities that
purchase "charged-off consumer debt." At the time SB 233 was
being considered, the bill's sponsor, the Attorney General,
recognized that such concerns are compounded by the fact that 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. Accordingly, that
bill included provisions that prohibit a default or other
judgment from being 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.
Moreover, SB 233 prohibited buyer from bringing suit or
initiating arbitration or other legal proceeding to collect a
consumer debt if the applicable statute of limitations on the
debt buyer's claim has expired. Significantly, the Legislature
limited the application of FDBPA to debt buyers with respect to
consumer debt sold or resold on or after January 1, 2014.
Under existing law, an individual may set aside a default
judgment (which is a judgment entered against a defendant who
has failed to plead or otherwise defend against the plaintiff's
claim) if they did not receive notice in time to defend the
action. A motion to set aside the default judgment must be
filed within the earlier of two years after the entry of a
default judgment, or, 180 days after written notice that a
default judgment has been entered. This bill, sponsored by
Public Good, would create a separate default judgment rule to
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extend the time that a consumer would have to bring a motion to
set aside a default judgment entered against them in an action
brought by a third party debt buyer.
CHANGES TO EXISTING LAW
Existing law , the Fair Debt Buying Practices Act (FDBPA),
regulates the activities of a person or entity (debt buyer) that
has bought charged-off consumer loans for collection purposes.
(Civ. Code Sec. 1788.50 et seq.) Existing law limits the
application of the FDBPA to debt buyers with respect to all
consumer debt sold or resold on or after January 1, 2014. (Civ.
Code Sec. 1788.50(d).)
Existing law provides that a debt buyer shall not bring suit or
initiate 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. (Civ. Code Sec. 1788.58.)
Existing law requires that in an action brought by a debt buyer
on consumer debt, certain facts must be alleged in the
complaint, including, among others:
the date of default or the date of the last payment;
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. The charge-off creditor's name and
address shall be in sufficient form so as to reasonably
identify the charge-off creditor;
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. If the debt was sold prior to January 1, 2014, the
debtor's name and last known address as they appeared in the
debt owner's records on December 31, 2013, shall be
sufficient; and
the names and addresses of all persons or entities that
purchased the debt after charge off, including the plaintiff
debt buyer. The names and addresses shall be in sufficient
form so as to reasonably identify each such purchaser. (Civ.
Code Sec. 1788.58(a)(5)-(8).)
Existing law provides that in an action initiated by a debt
buyer, 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 specific facts required to be alleged, above.
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Existing law further provides that no default or other judgment
may be entered against a debtor unless a copy of the contract or
other document described, as specified, authenticated through a
sworn declaration, has been submitted by the debt buyer to the
court. (Civ. Code Sec. 1788.60(a), (b).)
Existing law provides that in any action on a consumer debt, if
a debt buyer plaintiff seeks a default judgment and has not
complied with the requirements of the FDBPA, the court shall not
enter a default judgment for the plaintiff and may, in its
discretion, dismiss the action. (Civ. Code Sec. 1788.60(c).)
Existing law provides that, except as provided in the FDBPA, the
above default judgment provisions are not intended to modify or
otherwise amend existing procedures established under Section
585 of the Code of Civil Procedure (which provides a procedure
for judgment to be had if a defendant fails to answer or
otherwise respond to a complaint). (Civ. Code Sec. 1788.60(d).)
Existing law , the Code of Civil Procedure, provides that when
service of a summons has not resulted in actual notice to a
party in time to defend the action and a default or default
judgment has been entered against him or her in the action, he
or she may serve and file a notice of motion to set aside the
default or default judgment and for leave to defend the action.
Existing law requires that the notice of motion be served and
filed within a reasonable time, but in no event exceeding the
earlier of: (1) two years after entry of a default judgment
against him or her; or (2) 180 days after service on him or her
of a written notice that the default or default judgment has
been entered. (Code Civ. Proc. Sec. 473.5(a).)
Existing law requires that a notice of motion to set aside a
default or default judgment and for leave to defend the action
designate as the time for making the motion a date prescribed
under a specified provision (which sets forth the statutory
timelines for filing and serving specified noticed motions,
opposing papers, and reply papers), and that the notice be
accompanied by an affidavit showing under oath that the party's
lack of actual notice in time to defend the action was not
caused by his or her avoidance of service or inexcusable
neglect. The party shall serve and file with the notice a copy
of the answer, motion, or other pleading proposed to be filed in
the action. (Code Civ. Proc. Sec. 473.5(b).)
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Existing law provides that upon a finding by the court that the
motion was made within the period permitted by subdivision (a),
above, and that his or her lack of actual notice in time to
defend the action was not caused by his or her avoidance of
service or inexcusable neglect, it may set aside the default or
default judgment on whatever terms as may be just and allow the
party to defend the action. (Code Civ. Proc. Sec. 473.5(c).)
This bill would provide in the FDBPA that, notwithstanding the
Code of Civil Procedure provisions above, if service of a
summons has not resulted in actual notice to a debtor in time to
defend an action brought by a third party debt buyer and a
default or default judgment has been entered against the debtor
in the action, the debtor may serve and file a notice of motion
and motion to set aside the default or default judgment and for
leave to defend the action within 180 days of the first actual
notice of the action.
This bill would provide that a notice of motion to set aside a
default or default judgment and for leave to defend the action
shall designate as the time for making the motion a date
prescribed under existing law, and it shall be accompanied by an
affidavit showing under oath that the party's lack of actual
notice in time to defend the action was not caused by his or her
avoidance of service or inexcusable neglect. The party shall
serve and file with the notice a copy of the answer, motion, or
other pleading proposed to be filed in the action.
This bill would provide upon a finding by the court that the
motion was made within the period permitted by subdivision (a)
and that debtor's lack of actual notice in time to defend the
action was not caused by his or her avoidance of service or
inexcusable neglect, the court may set aside the default or
default judgment on whatever terms as may be just and allow the
party to defend the action.
This bill would provide that these provisions shall not be
limited by the time period specified in Section 1788.50 (which
limits the applicability of the FDBPA to debt buyers with
respect to all consumer debt sold or resold on or after January
1, 2014) and shall be applied to debt buyers with respect to all
consumer debt, regardless of the date it was sold.
COMMENT
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1. Stated need for the bill
According to the author:
There are far more default judgments in collection cases
brought by debt buyers against consumers than there are in any
other type of case. Yet despite increased education and media
attention around this issue, the number of default judgments
in collection cases remains very high in California. For
example, in Sacramento County Superior Court, collections
cases resulted in default judgments in 74 [percent] of cases
filed in 2013 and 79.3 [percent] for cases filed in the first
[five] months of 2014. [ . . . ]
Prior to the passage of California's Fair Debt Buying
Practices Act (FDBPA) in 2013, debt buyers were not required
to provide the Court with any evidence that the Defendant
being sued actually owed the debt. [ . . . ] For many
consumers with default judgments entered against them, the
first time they are made aware they have been sued on a debt
is when they are served post-judgment with a notice of wage
garnishment.
Although the FDBPA has made great strides in reforming debt
collection litigation, it has no effect on default judgments
entered before January 1, 2014. It's these default
judgments-ones obtained before the FDBPA was signed into
law-that SB 641 will affect. [ . . . ] Moreover, it now
appears that at least certain debt buyers are purposely
waiting for the two-year mark to pass after having obtained a
default judgment and only then seeking a garnishment order,
leaving consumers no recourse to challenge the validity of the
debt.
SB 641 will allow a consumer, in limited circumstances, to
file a motion to set aside a default judgment that is more
than two years old so the consumer may challenge the validity
of the debt in court and try the case on the merits. The
effect of SB 641 is limited to cases brought by third party
debt buyers.
Bay Area Legal Aid, in support, notes that they frequently see
default judgments granted in cases "wherein the underlying
accounts were fraudulent, the result of identity theft, or
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otherwise incorrect and the defendant was 'served' at a location
that they did not live or work. Nonetheless these defendants
are often precluded from setting aside the judgment by an
arbitrarily imposed deadline. This law would provide
individuals with an opportunity to have their issues heard
regarding both service of the summons and complaint and the
underlying debt collection lawsuit. For the working poor living
paycheck to paycheck a default judgment, with its accompanying
wage garnishment and bank account levies, can lead directly to
homelessness and other severe consequences." Bay Area Legal Aid
argues that the bill will prevent abuse by debt buyers where the
vast majority of debt collection lawsuits result in default
judgments; provide relief for low-income wage earners facing
collection on unsubstantiated default judgments and give low
income litigants the chance to have their cases heard on the
merits; and resolve an unsettled area of law where some courts
recognize the principle that judgments that are void for lack of
service may be set aside after two years under California Code
of Civil Procedure Section 473(d).<1>
2. Bill would promote hearing consumer debt actions on the
merits where default judgment was entered against a party who
had no actual notice of the action until it was too late to
avail themselves of the existing remedy
Existing law requires that a defendant to an action against whom
a default judgment has been entered bring any motion to set
aside the default judgment within the shorter of two time
periods: (1) two years after the date of entry of a default
judgment against him or her; or (2) 180 days after service on
him or her of a written notice that the default or default
judgment has been entered. This remedy is available only where
service of a summons has not resulted in actual notice to the
defendant in time to defend the action and the defendant's lack
of actual notice was not caused by his or her avoidance of
service or inexcusable neglect. (See Civ. Code Sec. 473.5.)
This bill creates a separate default judgment rule that
---------------------------
<1> That section provides that a court may, upon motion of the
injured party, or its own motion, correct clerical mistakes in
its judgment or orders as entered, so as to conform to the
judgment or order directed, and may, on motion of either party
after notice to the other party, set aside any void judgment or
order.
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potentially extends the amount of time a consumer defendant in a
third party debt buying action has to bring a motion to set
aside a default judgment. Specifically, the bill would permit a
debtor to serve and file a notice of motion and motion to set
aside the default or default judgment and for leave to defend
the action within 180 days of the first actual notice of the
action. This 180-day time limit could fall after the two year
limit otherwise prescribed under existing law. The bill does
not, however, alter the limited availability of this remedy (to
set aside a default judgment) to only those situations where:
(1) service of a summons has not resulted in actual notice to
the defendant in time to defend the action; and (2) the
defendant's lack of actual notice was not caused by his or her
avoidance of service or inexcusable neglect. As with existing
law, the notice must be accompanied with an affidavit showing
under oath that the defendant's (here, the debtor) lack of
actual notice in time to defend the action was not caused by his
or her avoidance of service or inexcusable neglect. (Compare
Code Civ. Proc. Sec. 473.5(b) to SB 641's proposed subdivision
(b).) Likewise, as with existing law, the court would not be
permitted to set aside the default judgment unless it finds that
the motion was made within the appropriate time limit and that
the defendant's lack of notice in time to defend the action was
not caused by his or her avoidance of service or inexcusable
neglect. (Compare Code Civ. Proc. Sec. 473.5(c) to SB 641's
proposed subdivision (c).)
Staff notes that, even in cases not involving third party debt
buyer actions, there is a possibility under existing law that a
default judgment could erroneously be entered against a person
who does not have actual notice of the action until after the
time period to bring a motion to set aside the default judgment
has passed. It is for this reason that existing law already
includes provisions to set aside a default judgment when the
individual did not receive actual notice. While finality of
judgments is preferred for a variety of reasons, such as
judicial economy and efficiency, and this preference is
recognized by existing limits on appeals of judgments, and legal
concepts such as "res judicata" (a defense barring the same
parties from litigating a second lawsuit on the same claim,
where final judgment on the merits has been rendered), that is
not necessarily the case in default judgments where the
defendant lacked notice of the matter and was unable to defend
him or herself in a trial on the merits. A default judgment is
not a judgment made upon the merits and is valid only insofar as
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the defendant had notice of the action and neglected to avail
itself of its opportunity to defend against the action in
accordance with requirements and timelines set by law. As
argued by the author, "California courts have a long standing
policy of trying cases on the merits when at all possible. 'The
policy of law is to have every litigated case tried on its
merits[;] and [it] looks with disfavor on [a] party [who,
regardless of the merits of his case,] attempt[s] to take
advantage of [the] mistake, surprise, inadvertence or neglect
[of his adversary]' Denke v. Bowes (1947) 77 Cal.App.2d 642[,
645 (internal citation omitted)]."
3. Current time frames to move to set aside a default judgment
are particularly inadequate and harmful as applied to
defendants in third party debt buying actions
This bill seeks to specifically address the problem posed by
default judgments obtained by third party debt buyers against a
party who had no actual notice of the action through no fault of
his or her own. As noted in the Background and in Comment 1
above, in third party debt buying actions, particularly those
brought prior to the enactment of the FDBPA, it is reportedly
not uncommon for the defendant debtor to not even know of the
action until after execution of the judgment is sought-which can
fall after the earlier of the two time periods specified under
existing law (i.e. (1) two years after the date of entry of a
default judgment against him or her; or (2) 180 days after
service on him or her of a written notice that the default or
default judgment has been entered.) Public Good provides an
example of the problem with the current default judgment rule
for actions involving third party debt buying of consumer debt:
. . . "Maryann" lives in Northern California. She has never
even visited Los Angeles. Yet[,] in 2009, a debt buyer
allegedly served her at a Los Angeles residence. The Los
Angeles Superior Court entered a default judgment against
Maryann. Wage garnishment-in Northern California-commenced in
2015, and that was how Maryann learned about the lawsuit. In
fact, Maryann did not owe this credit card debt: she has only
one line of credit, which is in good standing.
Because more than two years have passed since the court
entered judgment, current law affords Maryann no relief unless
she files a new lawsuit to challenge the judgment. Consumers
like Maryann rarely have the ability or resources to bring
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suit on their own. If they do, their lawsuits often burden
the courts. SB 641 will create an accessible, efficient
remedy for people like Maryann who have been bushwhacked by a
judgment through no fault of their own.
Similarly, the author cites a case where an individual received
a notice of wage garnishment based on a default judgment
obtained in 2002 by a debt buyer for a credit card that the
individual never applied for or received. "She had never lived
at the address on the credit card statements, and was allegedly
'personally served' with the lawsuit at the address she had
vacated [six] months earlier. The first she heard of the
default judgment was when her wages were garnished 12 years
later. The proceeding was disastrous for [this individual]; she
fell behind in her rent and risks being evicted because 25
[percent] of her wages are being garnished for a debt that is
not and never was hers."
Public Counsel emphasizes that "[o]nly consumers who lack actual
knowledge of debt buyer suits will have recourse under the new
law. They will have to act within a reasonable time after
learning about the lawsuit. In addition, they will have to
submit an affidavit sworn under penalty of perjury that their
lack of notice did not result from avoidance of service or
inexcusable neglect, and then will have to defend the action on
the merits. This new bill is no free ticket out of debt."
While the bill does not limit the applicability of the extended
period to bring a motion to set aside a default judgment to
those situations allegedly involving the "wrong" debtor,
arguably, the policy preference to have these matters tried on
the merits where the defendant had no actual notice of the
action until after the statutory time period to bring a motion
to set aside the default judgment applies regardless of whether
or not the debtor in question is the "right" or "wrong" debtor.
4. Bill would apply to debt buyers with respect to any
consumer debt, regardless of when that debt was sold
While existing law, the FDBPA, applies only to debt buyers with
respect to all consumer debt sold or resold on or after January
1, 2014, this bill would provide that the extended timeline to
file a notice of motion and motion to set aside the default or
default judgment would apply to debt buyers with respect to all
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consumer debt, regardless of the date it was sold. Staff notes
that the January 1, 2014 date is significant because default
judgments for debt sold or resold after that date are subject to
the restrictions imposed by SB 233 (Leno, Ch. 64, Stats. 2013).
(See Background.)
While the application of this bill to all default judgments
obtained by debt buyers could theoretically open a significant
number of cases, that number is dramatically reduced because the
bill only applies where an individual has not received actual
notice. For example, if a defendant had actual notice of a 2010
default judgment in 2014, that claim could not be brought after
the enactment of this bill as 180 days would have passed since
the defendant received actual notice. However, if the default
judgment was entered in 2013 and a debt buyer waits until the
end of this year to seek wage garnishment to ensure that the two
year mark passes (a practice that the author asserts some debt
buyers are engaging in) before the defendant receives "actual
notice," this bill could feasibly help those defendants. Stated
another way, for those individuals, this bill could give parties
who were subject to default judgments the first real opportunity
to defend themselves against consumer debt actions that they had
no notice of until after it was too late to bring a motion to
set aside the judgment. This opportunity for due process would
be particularly significant to consumers who had default
judgments entered against them where they did not owe the
underlying debt or the debt was otherwise time-barred.
Insofar as the bill applies to older (pre-FDBPA) default
judgments, concerns about default judgments would only be
compounded by the fact that the default judgment feasibly was
entered in a case where the debt was otherwise time-barred. As
reflected in the FTC report (see Background) on debt buying
practices issued prior to the enactment of the FDBPA, the FTC
shared concerns that certain collectors "regularly sue consumers
on time-barred debts." That practice was exacerbated by the
practical reality that many consumers do not defend themselves
against these suits, even when the action would be barred by the
statute of limitations. The FTC further asserted that
"[b]ecause 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. Indeed, some judges who participated in the
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roundtables stated that, 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." (Federal Trade Commission, Repairing a
Broken System (July 2010)
[as of
May 3, 2013] at p. 30.)
5. Oppose unless amended
DBA International (DBA) and the California Association of
Collectors (CAC) take an oppose unless amended position on this
bill. They write that they share the author's goal of wanting
to ensure that all parties that are subject to an action before
a court of law have a properly served summons so as to have
sufficient notice to defend the action, but that they would like
to see the Legislature adopt best practices associated with
service of summons, similar to that adopted in other
jurisdictions in furtherance of that goal instead. As currently
drafted, DBA and CAC oppose this bill in part because they
believe existing law already provides an adequate methodology to
vacate judgments when an individual contends they did not
receive actual notice in time to defend an action - namely,
Section 473.5 of the Code of Civil Procedure. Moreover, they
assert that, even if the time period under existing law has
expired, "any litigant still has the ability to file an
independent action in equity seeking to set aside the judgment."
DBA and CAC also oppose the bill on the following grounds:
This bill allows for discriminatory treatment of default
judgments obtained by companies in one industry, namely debt
buying companies. "Defaults obtained by debt buying companies
are not inherently suspect-in fact, given the requirements of
the industries national certification program, California's
[FDBPA], and the requirements of federal agencies such as the
Consumer Financial Protection Bureau (CFPB), Federal Trade
Commission (FTC), United States Comptroller of the Currency
(OCC)[,] it can be argued that debt buying companies are in
fact more capable of compliance than many companies for which
this bill does not apply. Furthermore, this bill would create
a highly unusual fact pattern where a default judgment
obtained by a bank would be subject to the two year period
contained [under existing law] and the mere act of selling the
judgment on the secondary market (with no other factual
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changes) would subject that judgment to significantly lower
thresholds to vacate in perpetuity.
The bill questions the competency of the judiciary, given that
a court cannot enter judgment by default in favor of anyone
(including debt buying companies) unless the court is
satisfied that the defendant has been properly served the
defendant has failed to respond, and the plaintiff has put
forth sufficient evidence to base the judgment upon. "There
simply is no basis for imposing on the industry higher levels
of evidentiary requirements for a default judgment [as
required under the FDBPA] and then pairing it with the lowest
threshold to vacate default judgments via the provisions of SB
641."
The bill conflicts with document retention and destruction
policies and rule of law concerning judgments. "The effect of
a judgment is to fold all data, documentation, and evidence
concerning the legitimacy of the underlying obligation into
the judgment. Absent a fraud on the court . . . a judgment is
a legally binding document that stands in place of all that
existed prior to the judgment." Due to companies' mandatory
data and document retention and destruction policies that are
based on current law, insofar as the bill allows motions to be
filed to vacate five or even 10 year old judgments, the bill
"would all but virtually guarantee that some of the evidence
which was reviewed by the court no longer exists due to
mandated destruction policies."
This bill creates the potential to inundate the courts as a
result of zealous legal representation that uses every
available legal option the law permits, regardless of the
legitimacy of service or high quality of the evidence
considered by the court at the time of [default] judgment.
The author in response argues that an independent action in
equity is available in some circumstances, it is: (1) more
costly to consumers; (2) a less efficient use of court time and
resources; (3) almost all such cases would require considerable
assistance from legal counsel to be effective; and most
importantly, (4) people who are getting their wages garnished
and bank accounts levied cannot afford to wait the year or so
that it normally takes for a new lawsuit to be resolved.
The author also asserts that "despite the opposition's claim to
the contrary, there is ample reason to treat default judgments
obtained by debt buyers different than other default judgments.
While supporters are seeing many cases brought by debt buyers
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where consumers were having their wages garnished without
getting an opportunity to challenge the validity of the debt,
there has been no similar outcry that other industries are
misusing the court system in the same fashion-thus the bill was
narrowly tailored to this industry."
Additionally, the author believes that the opposition's argument
that the FDBPA ensures all default judgments have been
legitimately obtained is flawed as that act does not apply to
default judgments obtained before 2014. Further, the author
argues that insofar as destruction policies are "mandated," the
solution is for the company to change its internal policy to
reflect amendments to law or new debt collection practices and
ensure that they retain proof of debts in cases where a default
judgment was obtained. "Moreover, when consumers get notice
through wage garnishment and come to court to set aside a
default judgment, the case can be settled or litigated and both
parties can get a real, and equitable, final judgment. At that
time debt buyers would be free to resume their document
destruction policies.
Lastly, as to the opposition's claim that SB 641 will inundate
courts because consumers' "zealous legal representation" will
use "every legal option the law permits, regardless of the
legitimacy of the service" the author notes the following: (1)
most consumers in these circumstances do not have, and cannot
afford, zealous legal counsel; (2) this claim ignores that SB
641 requires a party asking the court to set aside a default
judgment to file a sworn affidavit that he or she was never
served with actual notice of the debt; and, (3) motions to set
aside default judgments would not inundate courts any more than
independent actions in equity.
Support : Bay Area Legal Aid; California Reinvestment Coalition;
Center for Responsible Lending; Consumers Union; East Bay
Community Law Center (EBCLC); Public Counsel
Opposition : California Association of Collectors (oppose unless
amended); DBA International (oppose unless amended)
HISTORY
Source : Public Good
SB 641 (Wieckowski)
PageP of?
Related Pending Legislation : None Known
Prior Legislation : SB 233 (Leno, Ch. 64, Stats. 2013) See
Background.
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