BILL ANALYSIS Ó SB 641 Page 1 Date of Hearing: August 19, 2015 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair SB 641 (Wieckowski) - As Amended July 16, 2015 ----------------------------------------------------------------- |Policy |Banking and Finance |Vote:|7 - 2 | |Committee: | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | |Judiciary | |7 - 3 | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: YesReimbursable: No SUMMARY: This bill amends the Fair Debt Buying Practices Act to allow an alleged debtor, seeking to defend an action brought by a debt buyer, to make a motion to set aside a default judgment entered against the alleged debtor on or after January 1, 2010 if service of process did not result in actual notice to the alleged debtor. SB 641 Page 2 The bill requires the motion to set aside be filed within the earlier of: (a) six years from the entry of the default judgment; or (b) 180 days of the first actual notice of the action. However, in the case of identity theft or mistaken identity of the alleged debtor, the motion to set aside must be filed within 180 days of the first actual notice of the action regardless of when default judgment was entered. FISCAL EFFECT: Minor and absorbable costs to Judicial Council; potential increase in caseload, though likely modest, to state courts. COMMENTS: 1)Purpose. According to the author, prior to the enactment of the Fair Debt Buying Practices Act in 2013 (FDBPA), debt buyers were not required to provide courts with evidence that defendants actually owed the debts acquired. The author contends that for many consumers with default judgments entered against them, the first time they become aware of the suit or judgment was upon notice of wage garnishment. The author indicates the FDBPA made important changes to debt buying practices, but did not affect default judgments entered before January 1, 2014. Current law makes it difficult to set aside default judgments more than 2 years old, and the author contends some debt buyers wait for 2 years before seeking a garnishment order to avoid potential challenges. 2)Debt Buying Practices. In 2010, the Federal Trade Commission (FTC) issued a report indicating collection actions against debtors do not provide sufficient information to defendants or courts about the underlying debts and the buyer's right to SB 641 Page 3 collect. The report found very few consumers defended or otherwise participated in debt collection litigation, noted concern over the number of default judgments, and recommended reforms to court procedures and debt buying practices to increase the ability of consumers to participate in debt collection litigation. The FDBPA was enacted in response to the FTC report and reformed the state's complaint and collection process for charged-off consumer debt. 3)Opposition. Opponents highlight that the bill allows consumers to claim they did not receive actual notice for several years after the entry of default judgment, and in the case of claims of identity theft or mistaken identity, for an unlimited number of years. With no time limitations, opponents argue collectors will be required to maintain case and service documents in perpetuity. Opponents also argue the retroactive application of the bill risks unsettling cases where documentation has already been destroyed, and will result in additional caseload to the state's courts. Lastly, opponents assert this bill seeks to solve a problem with respect to service of process, not default judgments in debt collection cases, and therefore should apply to all judicial proceedings. Analysis Prepared by:Joel Tashjian / APPR. / (916) 319-2081 SB 641 Page 4