BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 641|
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UNFINISHED BUSINESS
Bill No: SB 641
Author: Wieckowski (D)
Amended: 8/27/15
Vote: 21
SENATE JUDICIARY COMMITTEE: 5-2, 4/21/15
AYES: Jackson, Hertzberg, Leno, Monning, Wieckowski
NOES: Moorlach, Anderson
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
SENATE FLOOR: 29-10, 5/22/15
AYES: Allen, Beall, Block, Cannella, De León, Galgiani, Hall,
Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson,
Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning,
Pan, Pavley, Roth, Stone, Vidak, Wieckowski, Wolk
NOES: Anderson, Bates, Berryhill, Fuller, Gaines, Moorlach,
Morrell, Nguyen, Nielsen, Runner
ASSEMBLY FLOOR: 45-26, 9/9/15 - See last page for vote
SUBJECT: Debt buying: default judgment
SOURCE: Public Good
DIGEST: This bill adds a provision to the Fair Debt Buying
Practices Act (FDBPA) to provide consumers, in limited
circumstances involving actions brought by debt buyers, extended
time to file a motion to set aside a default or default judgment
and for leave to defend an action relating to debt, if the
service of summons did not result in actual notice to the
consumer in time to defend the action. This bill requires,
except in cases of identity theft or mistaken identity, that the
consumer serve and file the notice of motion within a reasonable
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Page 2
time, but in no event exceeding the earlier of either: (1) six
years after entry of the default or default judgment; or (2) 180
days of the first actual notice of the action, as specified.
Assembly Amendments (1) require that service and filing of the
motion be made within a reasonable amount of time; (2) limit the
scope of the bill to defaults or default judgments entered on or
after January 1, 2010; (3) allow for the introduction and
consideration of evidence in support of or against the motion;
and 4) make other clarifying changes.
ANALYSIS:
Existing law:
1) Provides that the FDBPA regulates the activities of a person
or entity (debt buyer) that has bought charged-off consumer
loans for collection purposes.
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, specified facts must be alleged in the
complaint.
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.
5) 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.
6) Provides that in any action on a consumer debt, if a debt
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buyer plaintiff seeks a default judgment and has not complied
with the FDBPA, the court shall not enter a default judgment
for the plaintiff and may dismiss the action.
7) 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).
8) Provides, under the Code of Civil Procedure, 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 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.
9) Requires that a notice of motion to set aside a default or
default judgment and for leave to defend the action, above,
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 must serve and file with the
notice a copy.
10)Provides that upon a finding by the court that the motion
was made within the time period permitted, 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, 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.
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This bill:
1) Creates a limited exception to the current timelines to
bring a motion to set aside a default or default judgment and
for leave to defend the action under the FDBPA. Provides
that if service of a summons has not resulted in actual
notice to a person in time to defend an action brought by a
debt buyer and a default or default judgment has been entered
against the person in the action, the person 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, generally, that the notice of motion be served and
filed within a reasonable time, but in no event exceeding the
earlier of:
Six years after entry of the default or default
judgment against the person.
One hundred eighty days of the first actual notice of
the action.
1) Requires, notwithstanding the above, that in the case of
identity theft or mistaken identity, the notice of motion be
served and filed within a reasonable time, but in no event
exceeding 180 days of the first actual notice of the action.
In the case of identity theft, the person alleging that he or
she is a victim of identity theft must provide the court
specified documentation. In the case of mistaken identity,
the moving party must provide relevant information or
documentation to support the claim that he or she is not the
party named in the judgment or is not the person who incurred
or owes the debt.
2) Provides that a notice of this motion shall designate as the
time for making the motion a date prescribed under existing
law, and shall be accompanied by an affidavit stating 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 must serve and file with
the notice a copy of the answer, motion, or other pleading
proposed to be filed in the action. Permits either party to
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introduce, and permits the court to consider, evidence in
support of its motion or opposition, including evidence
relating to the process server who appears on the proof of
service of the summons and complaint.
3) Provides upon a finding by the court that the motion was
made within the periods permitted by the bill, above, and
that a person'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. If the validity of the
judgment is not challenged, the court may select an
appropriate remedy other than setting aside the default or
default judgment.
4) Provides that the above provisions apply to a default or
default judgment entered on or after January 1, 2010, except
in the case of identity theft or mistaken identity, in which
case these provisions shall apply regardless of the date of
the default or default judgment.
5) Provides that the above provisions shall not limit the
equitable authority of the court or other available remedies
under law.
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. In July 2010, the Federal Trade Commission (FTC)
issued a report, Repairing a Broken System, examining debt
collection litigation and arbitration proceedings that concluded
the "system for resolving consumer debt collection disputes is
broken" and recommended significant reforms.
In 2012, the federal Consumer Financial Protection Bureau (CFPB)
published a rule allowing for federal supervision of the larger
consumer debt collectors. (CFPB, Consumer Financial Protection
Bureau to Oversee Debt Collectors (Oct. 24, 2012).) The CFPB
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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, Chapter 64, Statutes of 2013), the FDBPA, 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 to
the court.
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, creates a separate default judgment rule to 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 debt buyer.
Comments
As stated by the author:
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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 [ . . . ] debt
buyers.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
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According to the Assembly Appropriations Committee, minor and
absorbable costs to the Judicial Council; potential increase in
caseload, though likely modest, to state courts.
SUPPORT: (Verified9/9/15)
Public Good (source)
Attorney General Kamala Harris
State Treasurer John Chiang
Bay Area Legal Aid
California Labor Federation
California Professional Firefighters
California Reinvestment Coalition
Center for Responsible Lending
Consumers for Auto Reliability and Safety
Consumers Union
East Bay Community Law Center
Katharine & George Alexander Community Law Center
Los Angeles Democratic Party Chairman Eric Bauman
National Consumer Law Center
National Employment Law Project
Public Counsel
Western Center on Law & Poverty
OPPOSITION: (Verified9/9/15)
California Association of Collectors
California Bankers Association
California Creditors Bar Association
DBA International
ARGUMENTS IN SUPPORT: 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 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
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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 this 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
existing law.
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."
ARGUMENTS IN OPPOSITION:DBA International (DBA) and the
California Association of Collectors (CAC) write in opposition
to this bill in part because they believe existing law provides
an adequate methodology to vacate judgments when an individual
contends they did not receive actual notice in time to defend an
action. 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 on the following
grounds:
This bill allows for discriminatory treatment of default
judgments obtained by companies in one industry (namely, debt
buying companies) and, furthermore, 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
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existing law] and the mere act of selling the judgment on the
secondary market (with no other factual changes) would subject
that judgment to significantly lower thresholds to vacate in
perpetuity."
This 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."
This 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 this bill allows motions to
be filed to vacate five or even 10 year old judgments, this
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.
ASSEMBLY FLOOR: 45-26, 9/9/15
AYES: Bloom, Bonilla, Bonta, Burke, Calderon, Campos, Chau,
Chiu, Chu, Cooley, Dababneh, Dodd, Eggman, Cristina Garcia,
Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon,
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Hadley, Roger Hernández, Holden, Irwin, Jones-Sawyer, Levine,
Linder, Lopez, Low, McCarty, Medina, Mullin, Nazarian, Quirk,
Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Mark Stone,
Thurmond, Ting, Weber, Williams, Atkins
NOES: Achadjian, Travis Allen, Baker, Bigelow, Chang, Chávez,
Dahle, Beth Gaines, Gallagher, Gray, Grove, Harper, Jones,
Kim, Lackey, Maienschein, Mathis, Mayes, Melendez, Obernolte,
Olsen, Patterson, Steinorth, Wagner, Waldron, Wilk
NO VOTE RECORDED: Alejo, Brough, Brown, Cooper, Daly, Frazier,
O'Donnell, Perea, Wood
Prepared by:Ronak Daylami / JUD. / (916) 651-4113
9/9/15 19:28:11
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