BILL ANALYSIS Ó
SB 641
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Date of Hearing: July 14, 2015
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
SB
641 (Wieckowski) - As Amended July 8, 2015
As Proposed to be Amended
SENATE VOTE: 29-10
SUBJECT: DEBT BUYING: DEFAULT JUDGMENTS
KEY ISSUES:
1)SHould a person WHO DID NOT RECEIVE ACTUAL NOTICE IN TIME TO
DEFEND AN ACTION BROUGHT BY A DEBT BUYER AND WHO HAS HAD A
DEFAULT JUDGMENT ENTERED AGAINST HIM OR HER BE PERMITTED TO
TIMELY FILE A MOTION TO SET ASIDE Any DEFAULT JUDGMENT ENTERED
ON OR AFTER JANUARY 1, 2010?
2)IN THE CASE OF IDENTITY THEFT, MISTAKEN IDENTITY OR OTHER
INSTANCE IN WHICH THE person AGAINST WHOM THE DEFAULT JUDGMENT
WAS OBTAINED IS NOT LEGALLY RESPONSIBLE FOR THE ALLEGED DEBT,
SHOULD HE OR SHE BE PERMITTED TO TIMELY FILE A MOTION TO SET
ASIDE THE DEFAULT JUDGMENT, REGARDLESS OF THE AGE OF the
JUDGMENT?
SYNOPSIS
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According to the author, 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 author
contends, 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. This bill is supported by a number of legal
aid organizations, who have submitted accounts of many of their
own clients who have directly experienced similar situations, as
well as the challenge of setting aside a default judgment.
Although the FDBPA established several new protections against
improper default judgments, it only has prospective effect and
does not apply to default judgments entered before January 1,
2014. According to the author, this bill is intended to provide
greater access to justice for this group of people who are
struggling to cope with default judgments entered before January
1, 2014, i.e. those obtained before the FDBPA went into effect
at the start of 2014. The Committee notes that the ability to
file a motion seeking simply to get into court to contest
enforcement of a debt one does not legally owe is an important
form of access to justice in itself. Proponents contend that
this bill increases access to justice-helping people "get their
day in court"-by making it possible for people to get before a
judge to produce evidence demonstrating they are not legally
responsible for the debt, without the relatively greater
obstacle posed by finding an attorney willing to file an
independent action in equity.
This bill creates a separate default judgment rule, within the
FDBPA, that potentially extends the amount of time a consumer
defendant in a 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, as long as the 180th day does not fall after the
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six-year anniversary of entry of the default or default
judgment. In response to various concerns articulated by the
debt buying industry and by fellow legislators on the Banking
and Judiciary Committees, the author proposes a number of
author's amendments as follows. As proposed to be amended, the
bill provides that in the case of identity theft, mistaken
identity, or other instances in which the alleged debtor is not
legally responsible for the debt, he or she may file a motion to
set aside the default judgment regardless of when the judgment
was entered as long as it is filed within 180 days he or she
received first actual notice (in most cases, practically
speaking, upon wage garnishment or bank levy.) In addition, the
proposed author's amendments: (1) allow courts greater
flexibility to fashion an appropriate remedy for cases where
set-aside of a default may not be the most narrowly tailored
remedy; (2) specifically allow the courts to consider evidence
relating to document retention policies of process servers if
that is an issue in the case; (3) clarify that this bill does
not limit a person's ability to pursue an independent action in
equity, nor does it limit any other remedies available under
law.
Despite these proposed amendments, the bill continues to be
opposed by the debt buying industry, collectors, and bankers.
In negotiations with the author and the Committee, these
opponents made it clear that they would only consider removing
their opposition if the bill were amended to apply only to
default judgments obtained after January 1, 2014, essentially
making the bill prospective in application. The author
reiterates that the bill is intended to address demonstrated
problems arising from default judgments obtained, often without
rigorous due process, before the FDBPA went into effect on
January 1, 2014. The Committee also notes that the amendment
sought by the debt buyers would necessarily require the author
and this Committee to disregard and negate the amendments agreed
to by the author at the insistence of the chair of the Banking
Committee when this bill was up for vote in that committee.
Accordingly, the author has limited his proposed amendments to
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only those described in this analysis, declined to take the
opposition's 2014-based amendment, and as a result the bill
continues to be opposed by the debt buying industry, collectors,
and bankers. This bill previously passed off the Senate Floor
with bipartisan support in the form of four Republican "Aye"
votes, and will be referred to Appropriations Committee should
it be approved here.
SUMMARY: Amends the Fair Debt Buying Practices Act to allow a
person, seeking to defend an action brought by a debt buyer, to
make a motion to set aside a default judgment obtained against
him or her if certain conditions are met. Specifically, this
bill:
1)Provides that, notwithstanding Section 473.5 of the Code of
Civil Procedure, if service of a summons has not resulted in
actual notice to an alleged debtor in time to defend an action
brought by a debt buyer and a default or default judgment has
been entered against the alleged debtor in the action, the
alleged 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.
2)Requires the notice of motion to be served and filed within a
reasonable time, but in no event exceeding the earlier of: (a)
six years after entry of the default or default judgment
against the debtor; or (b) 180 days of the first actual notice
of the action.
3)Notwithstanding 2) above, provides that in the case of
identity theft, mistaken identity, or other instance in which
the alleged debtor is not legally responsible for the debt,
the notice of motion shall be served and filed within a
reasonable time, but in no event exceeding 180 days of the
first actual notice of the action.
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4)Requires the notice of motion to set aside a default or
default judgment and for leave to defend the action to
designate as the time for making the motion a date prescribed
by Section 1005 of the Code of Civil Procedure, and requires
the notice of motion to be accompanied by an affidavit showing
under oath that the alleged 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. Further requires
the alleged debtor to serve and file with the notice a copy of
the answer, motion, or other pleading proposed to be filed in
the action.
5)Allows a debt buyer, in contesting the motion to set aside a
default judgment, to introduce, and the court to consider,
evidence relating to the document retention policies of the
process server who appears on the proof of service of the
summons and complaint.
6)Provides that, upon a finding by the court that the motion was
made within the permissible time period and that the alleged
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.
7)Allows the court to select an appropriate remedy other than
setting aside the default or default judgment in cases where
the validity of the judgment is not challenged.
8)Establishes that these provisions apply to a default or
default judgment entered on or after January 1, 2010, except
in the case of identity theft, mistaken identity, or other
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instance in which the alleged debtor is not legally
responsible for the debt, in which case these provisions shall
apply regardless of the date of the default judgment.
9)Clarifies that nothing in this bill shall limit the equitable
authority of the court or other available remedies under law.
EXISTING LAW:
1)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. (Code of Civil Procedure Section
473.5(a).)
2)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 of Civil Procedure Section 473.5(a).)
3)Requires that a notice of motion to set aside a default or
default judgment and for leave to defend the action 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, and requires the moving party to serve and file with
the notice a copy of the answer, motion, or other pleading
proposed to be filed in the action. (Code of Civil Procedure
Section 473.5(b).)
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4)Provides that upon a finding by the court that the motion was
made within the permitted period of time, 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, 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. (Code of Civil Procedure Section
473.5(c).)
5)Pursuant to the Rosenthal Fair Debt Collection Practices Act,
generally 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. (Title 1.6C of Part 4 of
Division 3 of the Civil Code, commencing with Section 1788.)
Pursuant to the Fair Debt Buying Practices Act (FDBPA) (Civil
Code Section 1788.50 et seq):
1)Regulates the activities of entities that have bought
charged-off consumer loans for collection purposes (hereafter
"debt buyers"), and limits the application of the FDBPA to
debt buyers with respect to all consumer debt sold or resold
on or after January 1, 2014. (Civil Code Section 1788.50(d).)
2)Provides that a debt buyer shall not bring suit or initiate
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. (Civil Code Section 1788.58.)
3)Requires that in an action brought by a debt buyer on consumer
debt, certain facts must be alleged in the complaint,
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including, among others:
a) The date of default or the date of the last payment;
b) 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.
c) 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; and
d) The names and addresses of all persons or entities that
purchased the debt after charge off, including the
plaintiff debt buyer, appearing in sufficient form so as to
reasonably identify each such purchaser. (Civil Code
Section 1788.58(a), paragraphs (5) to (8).)
4)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.
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. (Civil Code Section 1788.60, subd. (a) and (b).)
5)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. (Civil Code Sec. 1788.60(c).)
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FISCAL EFFECT: As currently in print this bill is keyed fiscal.
COMMENTS: According to the author:
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. The
now famous story of Senator Lou Correa receiving a
notice of wage garnishment for a debt owed by a
different person is not an anomaly. 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.
Currently, it is enormously difficult to set aside a
default judgment that is more than two years old, and
like Senator Correa, most Californians who have faced
unjust wage garnishment cannot make use of the current
exceptions. 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.
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Background on the Fair Debt Buyers Practice Act, landmark
legislation prospectively addressing problems with default
judgments. In 2010, 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. The FTC's report explained that "the function of debt
collection complaints in a notice pleading system is to provide
sufficient information so that: (1) consumers can determine
whether to admit or deny the complaint allegations and assert
affirmative defenses in their answers; and (2) judges can
determine whether to grant a motion for a more definite
statement or enter a default judgment." (FTC, "Repairing A
Broken System: Protecting Consumers in Debt Collection
Litigation and Arbitration", July 2010.) The FTC report makes a
number of findings and recommended reforms; for example:
The report finds very few consumers defend or
otherwise participate in debt collection litigation.
The FTC 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.
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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.
In response to the problems highlighted by the FTC report and
other reported problems with the debt collection and debt buying
industries, the Legislature enacted SB 233 (Leno, Ch. 64, Stats.
2013), the Fair Debt Buying Practices Act, to further regulate
the activities of entities that purchase "charged-off consumer
debt." As this Committee's analysis of SB 233 explained at the
time, the FDBPA was "not intended to affect the legal
enforceability, or collectability, of a charged-off consumer
debt, but is intended to impose enforceable standards upon the
collection and litigation of consumer debt that has been
purchased by a debt buyer following the consumer debt's charge
off by a creditor."
Among other things, the FDBPA requires the complaint in any
collection suit to allege, among other things, the nature of the
underlying debt and the consumer transactions 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 Act requires
the complaint to also allege the same specific factual
information about the debt that the debt buyer is required to
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possess in order to initiate a written contact with the debtor.
Because many of the complaints filed by debt buyers were
reportedly form complaints containing little information useful
to the person being sued, the Act helps ensure that in the
future, the complaint provides essential information about the
underlying debt at issue to not only the consumer being sued,
but the court itself, which needs reliable information if it is
to enter a judgment for either party.
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, the
Act prohibits 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 the Act, the court is
prohibited from entering a default judgment for the debt buyer
and instead may, in its discretion, dismiss the action. In
short, when the Act became effective at the start of 2014, it
created a strong incentive going forward for the debt buyer to
provide all required information to the court prior to pursuing
a default judgment.
Examples of default judgment cases offered by proponents where
the ability to file a motion under this bill would increase
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access to justice for the person wrongly garnished or levied.
Bay Area Legal Aid, writing in support, contends that they
frequently see default judgments granted in cases "wherein the
underlying accounts were fraudulent, the result of identity
theft, or 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." They further state:
(Here are) some examples of Bay Area Legal Aid clients
who have been affected by the practice of debt buyers
waiting two years before attempting to collect on
defaulted debt collection judgments through wage
garnishment or bank levy. Our clients do not learn of
these default judgments until their wages are garnished
or their bank funds are frozen and at that point it is
too late for them to file a motion to set aside the
default under the two year limit.
1. A Limited English Proficient client had a default
judgment by LVNV Funding LLC entered in 2011. Our
client was never served, and the Proof of Service lists
an address that she never lived at. She learned of the
judgment when LVNV, through its attorneys Hunt &
Henriques, levied our client's bank account in 2014.
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2. We had two clients with default judgements by
Cavalry entered in 2009. One client had their wages
garnished in 2011 by Cavalry through its attorney Winn
Law Group, the other client had their bank account
levied in 2011. Neither of these clients were served
with the original summons and complaint. In one
client's case, the Proof of Service claimed personal
service but described our client's age, race, and
gender incorrectly.
3. Finally, we had a client with a default judgment
from Palisades Collection, LLC entered in 2006. The
address of alleged service was not our client's
address, and she did not find out about the judgment
until 2014 when her bank account was levied.
The East Bay Community Law Center describes another such
example, as follows:
[Our client] came to East Bay Community Law Center with
a notice of wage garnishment based on a default
judgment obtained in 2002 by a debt buyer for a credit
card she had never applied for or received. She had
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never lived at the address on the credit card
statements, and was allegedly "personally served" with
the lawsuit at an address she had vacated 6 months
earlier. The first she heard of the default judgment
was when her wages were garnished 12 years later. The
proceeding was disastrous for [our client]; she fell
behind in her rent and risks being evicted because 25%
of her wages are being garnished for a debt that is not
and never was hers."
Finally, Public Good describes another example to illustrate the
need for this bill, stating:
"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
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ability or resources to bring 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.
The ability to file a motion seeking to get into court to
contest enforcement of a debt one does not legally owe is an
important form of access to justice in itself. Existing law,
Section 473.5 of the Code of Civil Procedure, provides that a
defendant to an action against whom a default judgment has been
entered must 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.
This bill creates a separate default judgment rule, within the
FDBPA, that potentially extends the amount of time a consumer
defendant in a debt buying action has to bring a motion to set
aside a default judgment. The bill's language, even after
recent amendments in Assembly Banking Committee, hews closely to
the parameters of CCP Section 473.5 in order to promote
consistency and familiarity among litigants and the court.
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
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the first actual notice of the action, as long as the 180th day
does not fall after the six-year anniversary of entry of the
default or default judgment (an increase over two years, as
recently established by the Banking Committee amendments.)
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 CCP Section 473.5, the notice must be accompanied with
an affidavit showing under oath that the alleged 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.
(Compare CCP Section 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 CCP Section 473.5(c) to SB 641's proposed
subdivision (c).)
Encore Capital Group, a debt buying company in opposition to the
bill, asserts that the bill is unnecessary because CCP Section
473.5 already provides a way for a person to seek a default
judgment to be set aside. However, as discussed above, the bill
now provides a less limited alternative to the relief offered by
Section 473.5 because, with respect to actions brought by a debt
buyer, it now provides for a six-year, rather than two-year,
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time period from entry of default. Arguably, this makes the
bill more valuable before rather than less valuable, by offering
an alternative path to access to justice.
Encore also notes that "even if the [two year] time period set
forth in [CCP] Section 473.5 has already expired, any litigant
still has the ability to file an independent action in equity
seeking to set aside the judgment. (See, e.g., Groves v.
Peterson, 100 Cal. App. 4th 659 (2002) [independent action in
equity, filed seven years after judgment was entered, was
allowed to proceed].") In response, the author contends that
although it is true that an independent action in equity may be
available, it is: (1) far more costly to initiate; (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 cannot afford to wait the year or
so that it normally takes for a new lawsuit to be resolved.
Committee staff agrees that, as a practical matter, it is a
greater challenge for most people to find an attorney willing to
help them file a new independent action in equity, as compared
to simply filing a motion in the existing case. In that key
respect, the ability to file a motion seeking to get into court
to contest enforcement of a debt one does not legally owe is an
important form of access to justice in itself. This bill
increases access to justice-helping people "get their day in
court"-by making it possible for people to get before a judge to
produce evidence demonstrating they are not legally responsible
for the debt, without the relatively greater obstacle posed by
hiring an attorney to file an independent action in equity and
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starting over with a new case in the judicial system.
Author's proposed amendments permit a category of "wrongly
identified" persons-i.e. those who do not legally owe the debt--
to file a motion to set aside a default judgment of any age
within 180 days of first actual notice. As currently in print,
the bill requires the notice of motion to be served and filed,
without exception, within the earlier of: (1) six years after
entry of the default or default judgment against the debtor; or
(2) within 180 days of the first actual notice of the action.
The author notes that this applies equally to people correctly
identified as the debtor but who were never properly served
("right debtor, not served properly") as well as people who are
wrongly identified as the debtor ("wrong debtor") because of
identity theft, mistaken identity, or other circumstance that
may have arisen through no fault of their own when the default
judgment was obtained years ago and subsequently resold several
times over to various debt buyers. Discussions among proponents
of the bill, opponents of the bill, and members of the Banking
and Judiciary Committees yielded a familiar sentiment over time
that suggested one possible area of consensus: namely, that a
"wrong debtor" deserves to get into court as quickly as possible
to get relief from collection efforts for a debt for which they
are not legally responsible. Debt buyers have expressed they
have no desire to continue to garnish the wages of anyone who is
misidentified or who is not legally responsible for the debt.
The Committee notes that stopping garnishment of the wrong
person, although potentially quick to achieve in a non-judicial
manner (See, e.g. Civil Code Section 1788.18 under the Rosenthal
Act, allowing debt collectors to evaluate and determine whether
to stop collections for reported cases of identity theft) is
still not equivalent to judicial relief enforceable by a court
order.
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In short, the author contends that even if two years (or for
that matter six years) have elapsed since a default judgment was
entered, so-called "wrong debtors", who by definition do not owe
the debt, should not be limited to filing an independent action
in equity because a two- or six-year statutory time limit bars
them from a more accessible route to justice, namely filing a
motion in the existing case to set aside the judgment.
Accordingly, the author proposes to amend the bill to provide
that in the case of identity theft, mistaken identity, or other
instance in which the alleged debtor is not legally responsible
for the debt, the notice of motion shall be served and filed
within a reasonable time, but in no event exceeding 180 days of
the first actual notice of the action. In other words, the
"wrong debtor" must still file the motion within 180 days of
first actual notice of the action (practically speaking, in most
cases, upon wage garnishment), but as proposed to be amended,
the six-year limit would no longer bar the "wrong debtor" from
making the motion in the case when the default judgment is over
six years old.
Author's proposed amendment to allow courts greater flexibility
to fashion an appropriate remedy for cases where the set-aside
of a default may not be the most narrowly tailored remedy. When
this bill was heard in Assembly Banking Committee, on more than
one occasion the question was asked whether a motion to set
aside the default judgment was necessarily the right relief to
be granted in every case before the court, or might such action,
if granted, unnecessarily impose the "death penalty" upon an
underlying default judgment that might still be valid as to the
person who actually owes the debt, but not the "wrong debtor"
making the motion. In other words, the issue is whether the
relief is appropriately tailored to the facts of the particular
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case.
The Committee notes that in the case of Senator Lou Correa, the
Senator gained actual notice of the underlying action when he
discovered that his wages paid by the State Senate were being
(wrongly) garnished for a debt (which he did not owe). In his
case, Senator Correa was not the person who owed the debt (which
was owed, in fact, by someone named Luis Correa); was never
properly served; and, importantly, was not the person against
whom the default judgment was obtained (again, Luis Correa).
Nevertheless, his Senate wages were wrongly garnished. The
author and sponsor report that Senator Correa's situation is not
typical of the cases that they see because, in the more common
case, the person whose wages are being wrongly garnished is also
the person against whom the default judgment is obtained (unlike
Senator Correa). Nevertheless, this example does illustrate the
situation where the default judgment against Luis Correa (who
was served and who is the true debtor) is still presumably valid
against Luis Correa and therefore need not be invalidated as a
result of the Court granting a motion by Senator Correa to set
aside the judgment.
In response to such concerns that the proposed motion to set
aside the default is not always the appropriate action for every
fact pattern, the author proposes to amend the bill to allow the
court to select an appropriate remedy other than setting aside
the default judgment in cases where the validity of the judgment
is not challenged. Put another way, in cases where the issue is
whether proper service of process was achieved, rather than
whether the underlying judgment is valid because the facts
suggest mistaken identity, the author's proposed amendments
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would allow the court greater flexibility to devise an
appropriate, more narrowly tailored remedy based on the facts of
the case. The author further proposes an amendment to clarify
that this bill does not limit a person's ability to pursue an
independent action in equity, nor does it limit any other
remedies available to the person under law.
Author's proposed amendments specifically allow the courts to
consider evidence relating to document retention policies of
process servers. Opponents of the bill express strong concern
that the bill creates irresolvable conflicts with document
retention and destruction policies employed by debt buyers or
the process servers who work for them. As Encore Capital
explains:
In order to defend the service of the summons and
complaint, debt buying companies need additional
information from the process servers they hire. This
is additional information that the courts do not have
because it is not in the Proof of Service form that is
filed with the court. Our process servers store the
additional details regarding the service of summons
and depending on their document retention policy, the
necessary additional information may or may not be
available as time goes on. . . Without ever being on
notice that it was necessary to maintain service
documents under the six year retroactive timeline
proposed in this bill, debt buying companies would be
unable to defend against a potential onslaught of
motions to vacate valid judgments.
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When this bill was heard in Assembly Banking Committee, there
was considerable debate over what evidentiary documents about
the default judgment or service of process may or may not be in
the court's file, and may or may not be dispositive of presumed
issues in the case. Generally speaking, on principle the
Committee favors an approach of streamlining access to
justice-allowing people to be heard in court -- and trusting the
court to weigh whatever evidence is presented to it by the
parties and then come to a just and appropriate decision. In
furtherance of this principle and in response to the concerns
expressed by the opposition, the author proposes to amend the
bill to specifically allow the debt buyer to introduce, and the
court to consider, evidence relating to the document retention
policies of the process server who appears in court to prove
service of the summons and complaint.
REGISTERED SUPPORT / OPPOSITION:
Support
East Bay Community Law Center (EBCLC) (sponsor)
American Civil Liberties Union (ACLU)
Bay Area Legal Aid
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California Reinvestment Coalition (CRC)
Center for Responsible Lending (CRL)
Consumer Federation of California (CFC)
Consumers for Auto Reliability and Safety (CARS)
Consumers Union
National Employment Law Project (NELP)
Public Counsel
Western Center on Law and Poverty (WCLP)
Opposition
California Association of Collectors (CAC)
California Bankers Association (CBA)
California Creditors Bar Association (CCBA)
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DBA International (DBA)
Encore Capital Group
Analysis Prepared by:Anthony Lew / JUD. / (916)
319-2334