BILL ANALYSIS Ó
SB 641
Page 1
SENATE THIRD READING
SB
641 (Wieckowski)
As Amended July 16, 2015
Majority vote
SENATE VOTE: 29-10
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Banking |7-2 |Dababneh, Chau, |Travis Allen, Kim |
| | |Gatto, Low, Perea, | |
| | |Ridley-Thomas, Mark | |
| | |Stone | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Judiciary |7-3 |Mark Stone, Weber, |Wagner, Gallagher, |
| | |Alejo, Chau, Chiu, |Maienschein |
| | |Cristina Garcia, | |
| | |Thurmond | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |11-5 |Gomez, Bloom, Bonta, |Bigelow, Chang, |
| | |Calderon, Eggman, |Gallagher, Jones, |
| | | |Wagner |
| | | | |
| | |Eduardo Garcia, | |
SB 641
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| | |Holden, Quirk, | |
| | |Rendon, Weber, Wood | |
| | | | |
| | | | |
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SUMMARY: Adds a new provision to the California Fair Debt
Buying Practices Act (FDBPA). Specifically, this bill:
1)Provides that 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, 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.
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 Code of Civil Procedure Section 1005, 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
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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
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.
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EXISTING STATE LAW:
1)Establishes the FDBPA which regulates the activities of a
person or entity that has bought charged-off consumer loans
for collection purposes. The FDBPA is limited to debt buyers
with respect to all consumer debt sold or resold on or after
January 1, 2014. (Civil Code Section 1788.50 et seq.)
2)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.
3)Requires that in an action brought by a debt buyer on consumer
debt, certain facts must be alleged in the complaint,
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. The charge-off
creditor's name and address shall be in sufficient form so
as to reasonably identify the charge-off creditor;
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. 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,
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d) 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.
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.
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.
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.
6)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 Code of
Civil Procedure Section 585 (which provides a procedure for
judgment to be had if a defendant fails to answer or otherwise
respond to a complaint).
7)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
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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: a) two years after
entry of a default judgment against him or her; or b) 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 et. seq.)
8)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.
9)Provides that upon a finding by the court that the motion was
made within the period permitted by subdivision 3a) 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.
10)Provides 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. (Civil Code Division 3,
Part 4, Title 1.6C, commencing with Section 1788.)
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EXISTING FEDERAL LAW regulates the collection of debt through,
among other things, the Fair Debt Collection Practices Act; Fair
Credit Reporting Act; and the Gramm-Leach-Bliley Act.
FISCAL EFFECT: According to Assembly Appropriations Committee,
minor and absorbable costs to Judicial Council; potential
increase in caseload, though likely modest, to state courts.
COMMENTS: This bill would 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 measure is limited to cases brought by debt buyers.
Simply stated, debt buyers are companies that purchase
delinquent charged-off debts from a creditor for a fraction of
the face value of the debt.
FDBPA: The FDBPA was established through legislation SB 233
(Leno), Chapter 64, Statutes of 2014, which went into effect on
January 1, 2014. The FDBPA regulates the practice of buying
charged-off consumer debt, sold or resold on or after January 1,
2014, for collection purposes and prescribes the circumstances
pursuant to which the debt buyer may bring suit. The FDBPA
prohibits a court from entering a default or other judgment in
an action initiated by a debt buyer against a debtor unless
business records, authenticated through a sworn declaration are
submitted by the debt buyer to the court to establish the facts.
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The California Code of Civil Procedure Section 473.5 permits a
party to ask a court to set aside a default judgment that has
been entered against him or her so that he or she may defend the
case on the merits only if:
1)The original service of summons did not result in actual
notice to the party in time to defend the action;
2)The default judgment is not more than two years old; and,
3)One hundred eighty days has not passed since the party was
served with actual written notice of the default judgment.
Need for this 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% of cases
filed in 2013 and 79.3% for cases filed in the first
5 months of 2014.
The Federal Trade Commission, among others, has
called for state legislation to deal with the
frequency of default judgments and lack of notice
provided to defendants in debt collection lawsuits
brought by debt buyers.
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Prior to the passage of 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.
Background: Existing law requires that a defendant to an action
against whom a default judgment has been entered bring any
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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 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, this 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 or
within six years after entry of the default judgment.
When this bill was heard in the Assembly Banking and Finance
Committee on July 6th, 2015, amendments were accepted to
establish a six-year limit on when a default judgment could be
challenge. Subsequent amendments taken in the Judiciary
Committee erased this 6 year limit in cases of identity theft or
mistaken identity. The language of this bill does not establish
any parameters for establishing that the debtor is victim of
identity theft or mistaken identity. Without clarification it
is unclear how a court would make a determination that a debtor
is factually a victim of identity theft or that the judgment was
a result of mistaken identity.
Process of a Debt Buyer for nonpayment of debt:
1)Debt buyers sue for the nonpayment of debt- the lawsuit
starts with a complaint
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The lawsuit starts when the debt buyer, files a "complaint"
(sometimes called a "petition") with the court. The complaint
will list consumer as a defendant, and perhaps someone else
too (like a spouse or someone who cosigned the loan or
account). It will also state why the debt buyer is suing, and
what the debt buyer wants - usually, the debt buyer wants
reimbursement for the money consumer owes, plus interest, and
sometimes attorneys' fees and court costs.
2)Service of the Summons and Complaint
The debt buyer must "serve" the consumer with a copy of the
complaint, along with a "summons." The summons notifies the
consumer that the consumer is being sued, and usually provides
additional information such as when the consumer needs to file
a formal response in court.
Most courts require the debt buyer to "serve" the documents by
handing them to the consumer personally. Debt buyers most
often hire a professional process server or a local sheriff to
"serve" the consumer. If the server can't find the consumer,
often he or she can leave the summons and complaint with
another adult at the consumer's house or business and then
mail a copy to the consumer.
Often, courts allow debt buyers to mail the consumer the
summons and complaint, along with a form for the consumer to
sign acknowledging that the consumer received the papers. If
the consumer signs and returns the form, the consumer will
have been deemed "served."
3)Where Will the Creditor File the Lawsuit?
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The debt buyer may sue the consumer in state civil court
(these courts can have many types of names: municipal court,
superior court, justice court, county court, to name just a
few), or, if the consumer owes money to the federal
government, in federal court.
4)Responding to the Lawsuit
Usually, a consumer has about 20 days to 30 days to file a
written response to the lawsuit. The document filed is often
called the "answer." A consumer prepares the answer and
determines whether or not to hire an attorney.
5)What happens if a consumer does not respond?
If a consumer does not meet the filing deadline, the debt
buyer will likely ask the court to enter a default judgment.
Sometimes, the court will award the amount the debt buyer
requests in the default judgment, some courts will review the
papers carefully to make sure the amount is justified, and
still others might require the debt buyer to present evidence
before awarding any money.
California Courts: 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 court looks with disfavor on party attempting to take
advantage of his adversary's mistake, surprise, inadvertence or
neglect by procuring default judgment, regardless of merits of
such party's case." Denke v. Bowes (App. 1947) 77 Cal. App. 2d
642.
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Analysis Prepared by:
Mark Farouk / B. & F. / (916) 319-3081 FN: 0001403