BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 2781|
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THIRD READING
Bill No: AB 2781
Author: Leno (D)
Amended: 8/8/06 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE : 3-1, 6/27/06
AYES: Dunn, Escutia, Kuehl
NOES: Harman
NO VOTE RECORDED: Morrow
ASSEMBLY FLOOR : 47-32, 5/30/06 - See last page for vote
SUBJECT : Private child support collectors
SOURCE : National Center for Youth Law
Childrens Advocacy Institute
DIGEST : This bill requires private child support
collectors (PCSCs), as defined, to comply with some basic
consumer protections to ensure that child support obligees
have clear information about the contract they are entering
into, have some basic rights to cancel the contract,
receive meaningful notice of collections made and the
amount of the collections kept by the private agency as its
fee, requires PCSCs to follow the debt collection practices
that apply to collectors of other types of consumer debt,
and provides remedies when PCSCs do not comply with these
requirements.
ANALYSIS : Existing law governs the collection of child
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support by local child support agencies. [Section 17000 et
seq. of the Family Code (all references are to the Family
Code)]
This bill requires a PCSC to meet some basic consumer
protections in its dealings with the support obligees in
contracting for the collection of past due child support.
Among other provisions, this bill:
1. Definition of PCSC . Defines a PCSC as a person,
corporation, attorney, or other nongovernmental entity
who is engaged by an obligee to collect court-ordered
child support for a fee or other consideration. A PCSC
does not include attorneys who deal with ongoing child
support issues in the course of representing a client in
a family law matter. A PCSC does include a private
nongovernmental attorney whose business is substantially
(at least 50 percent of time spent or remuneration
received) comprised of child support collections.
[Proposed Section 5610(a)]
2. Written contract requirements . Requires contracts to be
in 10-point type and disclose all of the following: (a)
the fees imposed by the contract and an example of how
they are calculated, (b) the amount of fees to be
charged set by the agency and not set by state law, (c)
the PCSC cannot charge fees on current support if the
obligee received any current child support during the
six months preceding the contract with the PCSC, (d) the
nature of services to be provided, (e) the expected
duration of the contract, (f) how the contract may be
canceled, (g) the address and other access information
for the PCSC, (h) that the PCSC is not a government
entity, and government child support agencies in
California provide services free of charge, (i) the PCSC
collects only money owed to the obligee and not support
assigned to the state or county due to the receipt of
CalWORKs or Temporary Aid to Needy Families (TANF), (j)
the PCSC will not take a fee from collections that are
primarily attributable to the actions of a government
entity or another and the PCSC is required by law to
refund any fees improperly retained, (k) that the
obligee may seek, or continue to use the services of a
government child support agency and the PCSC will not
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require or request that the obligee cease or refrain
from engaging in those services, (l) the PCSC is
required to keep and maintain case records for four
years and four months after the expiration of the
contract and prior to destruction or disposal of those
records the obligee may retrieve portions of the records
that are not confidential, and (m) a notice of
cancellation must be included.
This bill also provides the form of a statement on the
first page of the contract that details items that the
obligee understands and agrees to with respect to the
contract, including that the money to be collected is
owed to the obligee and not to the state or county, that
the child support to be collected is not assigned to the
state or county, and that the obligee would inform the
PCSC if the obligee applies for benefits under CalWORKS
or TANF.
This bill also specifies the form statement to be placed
immediately above the signature line on the contract
that details items that the obligee understands and
agrees to with respect to the contract, including that
the PCSC would charge a fee for all current child
support and arrears until the entire amount is
collected, that it could take years for the collection,
and if payment is collected through wage garnishment,
that the amount received from the PCSC will not be the
full amount of any periodic court-ordered child support
payment until the contract terminates since PCSC fees
are collected from the periodic payments.
3. Notice of cancellation form . Requires the PCSC to
include a notice of cancellation form with the contract
to ensure that obligees understand their rights to
cancel and have an easy form to accomplish this task.
The notice (provided verbatim in the bill) must be in
the same size font as the contract, and written in the
same language.
4. Right to cancel a contract, termination of contract .
Provides that the obligee has the right to cancel a
contract within 15 business days of execution of the
contract, or at the end of any 12-month period in which
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the amount of the child support collected is less than
50 percent of the amount scheduled to be paid under a
payment plan, or at any time if the PCSC commits a
material breach of any provision of the contract or a
material violation of any provision of the statute; that
the contract terminates automatically when the term
expires or the contracted amount is collected.
5. Effect of assignment to PCSC . Provides that an
assignment to a PCSC is a voluntary assignment for
purposes of bankruptcy.
6. No fees for current support and refund of improperly
retained fees . Provides that a PCSC shall not charge
fees on current support if the obligee received any
current child support during the six months preceding
execution of the contract with the PCSC, and requires a
PCSC that improperly retains fees from collections that
are primarily attributable to actions of a governmental
entity to refund all of those fees immediately upon
discovery or notice of the improper retention of fees.
[Proposed Section 5610 c (5)]
7. Information to be given to obligee . Requires the PCSC
to provide all of the following information: (a) the
amount of each collection, and the date it was received
by the PCSC and sent by the PCSC to the obligee, (b) the
amount of payment sent to the obligee and the amount and
percentage of each payment kept by the PCSC as its fee,
(c) the name of and other identifying information
relating to any obligor who made child support payments
collected by the PCSC, (d) the source of the payment and
the actions taken by the PCSC that resulted in the
payment. If this information is provided by telephone
or internet access, it shall be up to date. If written,
it shall be sent at least quarterly, and if provided by
other means, the information shall be updated and made
available at least monthly. [Proposed Section 5610(d)]
8. Direct deposit account . Requires a PCSC to establish a
direct deposit account with the state disbursement unit
and within two business days of the date of disbursement
notify the Department of Child Support Services (DCSS)
of the portion of each collection that constitutes a
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fee. The notice to DCSS shall be in electronic format.
[Proposed Section 5610(d)(3)]
9. Recordkeeping . Requires the PCSC to retain records for
the duration of the contract plus a period of four years
and four months from the date of the last child support
payment collected by the PCSC for the obligee. In
addition to the information required to be provided to
the obligee (see paragraph g above) the PCSC would be
required to maintain specified information such as a
copy of the child support order, all correspondence
between the PCSC and the obligee or obligor, and other
pertinent information. The PCSC would be required to
safeguard the information to prevent accidental
disclosure of confidential information pertaining to the
obligee or obligor and to allow access to
nonconfidential portions of the information to obligees
and obligors.
Debt Collection Practices
Existing law, the Rosenthal Fair Debt Collection Practices
Act (Act), prohibits debt collectors from engaging in a
variety of practices in collecting consumer debt.
Existing law defines its applicability to the collection
practices of consumer debt. Child support debt is not
included in that definition. [Section 1788.2 of the Civil
Code]
This bill prohibits a PCSC from engaging in debt collection
practices that are prohibited by the Act.
This bill prohibits a PCSC from misstating the amount of
the fee that may be lawfully paid to the PCSC or the
identity of the person who is obligated to pay the fee.
This bill prohibits a PCSC from making a false
representation of the amount of child support to be
collected, or ask any party other than the obligor to pay
the child support obligation, unless that party is legally
responsible for the debt or is the legal representative of
the obligor. The PCSC is not in violation of this
prohibition if it reasonably relies on information provided
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by the government entity, a court order, the obligee, or
the obligor as to the amount of the obligation due and
owing.
This bill prohibits a PCSC from requiring, as a condition
of providing services to the obligee, that the obligee
waive any existing right or procedure to pursue a civil
action, or that the obligee agree to resolve disputes in a
jurisdiction other than California or to the application of
laws other than those of California. Any waiver must be
knowing, voluntary and not made a condition of doing
business with the PCSC. Any waiver, including an agreement
to arbitrate or to choice of forum, shall be deemed
unconscionable, involuntary, against public policy, and
unenforceable.
Remedies
Existing law authorizes the following remedies for
violation of the Act:
Accordingly, this bill provides similar remedies to the
obligee or the obligor, as modified:
1. It permits an action for actual damages resulting from a
violation.
2. In addition, a PCSC would be liable for a civil penalty
of no less than $100 nor more than $1,000 if the PCSC
willfully and knowingly violates the provisions of the
Act.
3. Costs would be awarded to the prevailing party.
Reasonable attorney's fees based on the time necessarily
expended to enforce the liability may be awarded to a
prevailing party, other than the PCSC, asserting rights.
Reasonable attorney's fees may be awarded to a
prevailing PCSC if the court finds that the party
bringing the action did not prosecute the action in good
faith.
4. In an action by an obligor, the PCSC shall have no civil
liability to the obligor under any circumstance in which
a debt collector would not have any liability under Sec.
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1788.30 of the Civil Code.
5. A PCSC would not be in violation of this Act if the PCSC
shows by preponderance of the evidence that the action
complained of was unintentional and resulted from a bona
fide error that occurred notwithstanding reasonable
procedures to avoid the error.
6. These remedies are cumulative and in addition to other
remedies, rights, or procedures available under any law.
Other Provisions
1. Obligor to Pay Half PCSC Fee and Other Costs Ordered by
Court
This bill provides that every child support order issued
on or after January 1, 2008, and every child support
agreement approved by a court on or after January 1,
2008, shall include a separate money judgment owed by
the child support obligor to pay one-half of the fee
charged by a PCSC pursuant to a contract compliant with
this Act and any other child support collections costs
expressly permitted by the child support order.
This bill provides that the money judgment described
above shall be in favor of the PCSC and the child
support obligee, jointly, and that the PCSC may enforce
the obligation to pay the fee by any means available to
the obligee for the enforcement of the child support
order without any additional action or order by the
court. Any fee (as well as any other fees and costs
ordered by the court) thus collected from the obligor by
the PCSC pursuant to a compliant contract would not
constitute child support.
This bill would not grant the PCSC any enforcement
remedies beyond those authorized by federal or state
law.
This bill requires the PCSC, if the court order includes
other fees and costs by the obligor, to provide the
obligor written notice, no later than five days after
the PCSC makes the first collection, of the following:
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(a) the amount of arrearages subject to collection, (b)
the amount of the collection that will be applied to the
arrearage, and (c) the amount of the collection that
will be applied to the fees and costs of collection.
The PCSC would be required to include notice that the
obligor has 30 days to file a motion to contest the
amount of the collection fees and costs assessed against
the obligor and the amount of the arrearages subject to
collection.
2. Attorneys Acting as PCSCs
This bill requires an attorney acting as a PCSC to
conform to statutes, rules and case law governing
attorney conduct, including the right of the client to
cancel a contract at any time.
This bill allows the attorney to pursue normal remedies,
including reasonable payment for services rendered under
the doctrine of quantum meruit, provided those services
led to the collection of support.
3. Lien on Real Property
This bill specifies that any fees or monetary
obligations resulting from a compliant contract between
an obligee parent and a PCSC, or any money owed to a
PCSC by an obligor parent as a result of the PCSC's
efforts does not without further action create a lien on
real property nor may that amount be added to any
existing lien created by a recorded abstract of support
or be added to an obligation on any abstract of
judgment.
This bill, however, does not prevent the PCSC from
collecting fees it is owed by recording a new judgment
lien as otherwise authorized by law.
4. Notice to Local Child Support Agency
This bill requires the PCSC with whom an obligee
contracts for the collection of child support to provide
written notice to the local child support agency then
enforcing the obligee's support order, or the local
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child support agency for the county in which the obligee
resides, prior to commencement of collection activities.
The notice shall identify the obligee and the amount of
the arrearage claimed by the obligee.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/8/06)
National Center for Youth Law (co-source)
Childrens Advocacy Institute (co-source)
California Alliance for Families and Children
California Commission on the Status of Women
California NOW
Consumers Union
Supportkids, Inc.
OPPOSITION : (Verified 8/8/06)
Los Angeles County Bar Association Family Law Section
ARGUMENTS IN SUPPORT : This bill is sponsored jointly by
the Children's Advocacy Institute (CAI) and the National
Center for Youth Law (NCYL). In describing the need for
this bill, the CAI states:
"Child support is intended to provide economic
stability for the child. In many cases these payments
significantly contribute to a family's income, which
protects children from the devastation of poverty?When
the established [child support] collection process
disappoints, some families have turned to unregulated
private child support collectors. Unfortunately, there
have been instances when these private child support
collectors have taken advantage of families desperate
to collect their support?This bill will create a
framework to protect families from unscrupulous
collection practices and will protect children."
The NCYL focuses more on specific unfair practices used by
PCSCs in contracting with obligees:
"These private child support collectors (PCSCs) have
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emerged out of a self-stated need to assist parents who
have not been successful in collecting child support
from noncustodial parents. By in[sic] large these
private child support collectors are unregulated in
California. Unsuspecting parents often get pulled into
perpetual contracts that end up resulting in more of
any collections going to the collectors than children.
The fact that many parents are so desperate to collect
child support arrears often leaves them vulnerable to
some unscrupulous collectors and practices."
ARGUMENTS IN OPPOSITION : This bill includes, in the
definition of a PCSC, an attorney whose business is
substantially comprised of child support collections.
"Substantially" means that at least 50 percent of the
attorney's business in terms of remuneration or time spent,
is comprised of activities seeking to collect or enforce
child support obligations for other individuals.
The Los Angeles County Bar Association Family Law Section
is vehemently opposed to the inclusion of attorneys in the
definition of PCSC.
"AB 2781 defines a 'private child support collector' so
broadly that its restrictive provisions are
unjustifiably applicable to legitimate attorneys
engaged in the good faith qualified, competent and
ethical specialized practice of fair and reasonable
child support enforcement?As the direct result of AB
2781's overbroad definition of a 'private child support
collector,' not only will an obligee-mother be
'limited' in hiring a collection agency, she will
potentially also not be able to hire an 'effective,
qualified, competent and ethical private family law
attorney engaged in the specialized practice of child
support enforcement' either, even if she wished to do
so and is perfectly willing and satisfied with the
contractual arrangements offered by such private family
law attorney of her choice."
ASSEMBLY FLOOR :
AYES: Arambula, Baca, Bass, Berg, Bermudez, Calderon,
Canciamilla, Chan, Chavez, Chu, Cohn, Coto, De La Torre,
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Dymally, Evans, Frommer, Goldberg, Hancock, Jerome
Horton, Jones, Karnette, Klehs, Koretz, Laird, Leno,
Levine, Lieber, Lieu, Liu, Matthews, Montanez, Mullin,
Nation, Nava, Negrete McLeod, Oropeza, Parra, Pavley,
Ridley-Thomas, Ruskin, Saldana, Salinas, Umberg, Vargas,
Wolk, Yee, Nunez
NOES: Aghazarian, Benoit, Blakeslee, Bogh, Cogdill,
Daucher, DeVore, Emmerson, Garcia, Harman, Haynes,
Shirley Horton, Houston, Huff, Keene, La Malfa, La Suer,
Leslie, Maze, McCarthy, Mountjoy, Nakanishi, Niello,
Plescia, Richman, Sharon Runner, Spitzer, Strickland,
Tran, Villines, Walters, Wyland
NO VOTE RECORDED: Torrico
RJG:mel 8/8/06 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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