BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 890|
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THIRD READING
Bill No: SB 890
Author: Leno (D)
Amended: 5/17/11
Vote: 21
SENATE JUDICIARY COMMITTEE : 3-2, 5/10/11
AYES: Evans, Corbett, Leno
NOES: Harman, Blakeslee
SUBJECT : Fair Debt Buyers Practices Act
SOURCE : Attorney General Kamala Harris
DIGEST : This bill, the Fair Debt Buyers Practices Act,
imposes various restrictions on debt buyers who seek to
take steps to collect purchased debt, including (1)
prohibiting the collection of a debt without valid
documentation; (2) requiring a debt buyer who receives
payment to provide a receipt; (3) prohibiting suit or other
action to collect a consumer debt if the statute of
limitations has expired; (4) requiring specified
documentation of the debt to be attached to a complaint;
(5) requiring a dismissal of the action, with prejudice, if
a debt buyer seeks a default judgment without complying
with specified requirements. This bill provides that a
debt buyer who violates the provisions of this bill is
liable for specified damages, including costs and
reasonable attorney's fees, but permits a debt buyer to
avoid liability for unintentional bona fide errors. This
bill also requires a claim of exemption, and related
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financial statement form, to be provided to a judgment
debtor by a levying officer, as specified.
ANALYSIS : Existing federal law generally 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.
Existing state law, 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 collectors to debtors and others. (Civil
Code Section 1788 et seq.)
This bill enacts the Fair Debt Buyers Practices Act, whose
requirements and remedies are cumulative to those in the
Rosenthal Fair Debt Collection Practices Act as well as any
other law.
This bill prohibits a debt buyer from making any written
statement in an attempt to collect a consumer debt,
including bringing suit or initiating another type of
proceeding, unless the debt buyer possesses valid
documentation that the buyer is the sole owner of the debt
and reasonable verification of the amount of the debt
allegedly owed by the debtor. Reasonable verification
shall include documentation of the name of the original
creditor, the name and address of the debtor as it appeared
on the contract or other document evidencing the agreement
to the debt, and an itemized accounting of the amount
claimed to be owed, including all fees and charges. Upon
receipt of a request from the debtor to whom the debt
purportedly applies, the debt buyer shall make this
information available, without charge, to the debtor within
five business days.
This bill requires a debt buyer who receives payment on a
debt to provide an original receipt, or an exact copy, to
the individual from whom payment is received within 10 days
of payment, as specified.
This bill prohibits a debt buyer from bringing suit,
initiating another proceeding, or taking any other action
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to collect a consumer debt if the applicable statute of
limitations on the cause of action has expired.
This bill requires the following with respect to an action
brought by a debt buyer on a consumer debt:
Plaintiff shall disclose clearly and conspicuously on the
face of the complaint that he/she is a debt buyer;
All of the following are attached: (1) copy of the
contract or other writing evidencing the original debt
and agreement of the debtor to be responsible for the
debt, and establishing that each defendant debtor is, in
fact, responsible for the original account; (2) copy of
the writing establishing that the debt buyer is the sole
current owner of the debt, as specified; and
A statement of calculation of liability that separately
states the amount of the original debt, each fee and
charge added to the debt, and each payment credited to
the debt after the earliest charge off or the delinquency
closest in time to the sale of the debt.
This bill provides that for purposes of the above
provisions, the only evidence sufficient to establish the
amount and nature of the debt shall be properly
authenticated business records that satisfy the
requirements of the Evidence Code, as specified, and
include the following items: (1) copy of the contract or
other writing evidencing the original debt; (2) original
account number; (3) name of the original creditor; (4)
original charge-off balance; (5) itemization of charges and
fees claimed to be owed; (6) itemization of post charge-off
additions, if applicable; (7) date of last payment; and (8)
amount of interest claims and the basis for the interest
charged.
This bill provides that if a plaintiff who is a debt buyer
seeks a default judgment and has not complied with the
above requirements, the court shall not enter a default
judgment for the plaintiff and shall dismiss the action
with prejudice.
This bill, except as specified, provides that a debt buyer
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who violates any provision of this bill with respect to any
person is liable to the person in an amount equaling the
sum of the following: (1) actual damage sustained; (2)
damages, as specified in an individual or class action; and
(3) costs of the action and reasonable attorney's fees.
This bill provides that a debt buyer shall not be liable in
any action brought under this bill, if the debt buyer shows
by a preponderance of the evidence that the violation was
not intentional and resulted from a bona fide error
notwithstanding the maintenance of procedures reasonably
adapted to avoid any such error.
This bill provides that an action to enforce any liability
created by this title may be brought within two years from
the date of discovery of the violation.
This bill provides that in a case involving consumer debt,
as defined and regulated under the Rosenthal Fair Debt
Collection Practices Act, if the defendant debtor appears
for trial on the scheduled date and the plaintiff debt
buyer either fails to appear or is not prepared to proceed
to trial, and the court does not find a good cause for
continuance, judgment shall be entered for the debtor.
Notwithstanding any other law, in that instance, the court
may award the defendant debtor's costs of preparing for
trial, including, but not limited to, lost wages and
transportation expenses.
Existing law establishes a process for the enforcement of
money judgments and requires a levying officer to provide
certain documents and information to a judgment debtor and
to a designated employer in connection with wage
garnishment. Existing law permits a process server also to
serve an earnings withholding order on an employer and
requires that the process server also serve certain
documents at this time. Existing law requires an employer
who is served with an earnings withholding order to provide
certain documents to an employee who is a judgment debtor.
(Code Civil Procedure Sections 700.010, 706.103, 706.104,
706.108, and 706.122)
This bill requires, in the circumstances described above,
that a copy of the form that the judgment debtor may use to
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make a claim of exemption and a copy of the form used to
provide a financial statement also be provided.
This bill provides that its provisions are severable. If
any provision of this section or its application is held
invalid, that invalidity shall not affect other provisions
or applications that can be given effect without the
invalid provision or application.
Background
Debt buyers are companies that purchase delinquent or
charged-off debts from a creditor for a certain fraction of
the face value of the debt. Those companies have become
subject to increased scrutiny due to numerous complaints on
behalf of consumers. Last July, the Federal Trade
Commission (FTC) issued a report examining debt collection
litigation and arbitration proceedings that concluded the
"system for resolving consumer debt collection disputes is
broken" and recommended significant reforms. The FTC
further noted that: "The report finds very few consumers
defend or otherwise participate in debt collection
litigation. The Commission 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. 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. The report additionally finds that state
statutes of limitations on filing actions to recover on
debt are sometimes variable and complex, and generally not
understood by consumers. The Commission suggests that
states consider modifying their laws to make it simpler to
determine the applicable statute of limitations, and to
require that collectors provide consumers with important
information about their legal rights when collecting debt
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they know or should know is time-barred."
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 5/17/11)
Attorney General Kamala Harris (source)
California Reinvestment Coalition
Consumers Union
East Bay Community Law Center
Housing and Economic Rights Advocates
Lawyers' Committee for Civil Rights of the San Francisco
Bay Area
Professor Scott Maurer, Santa Clara University School of
Law
OPPOSITION : (Verified 5/17/11)
California Association of Collectors
California Creditors Bar Association
DBA International
ARGUMENTS IN SUPPORT : The author states:
"According to the Federal Trade Commission, �t]he system
for resolving disputes about consumer debts is broken,
and has urged states to pass legislation to provide
adequate protection for consumers. The system is broken
because courts have been swamped with debt collection law
suits driven by the growth of an industry that buys and
sells bundled portfolios of consumer debt, and misuses
the courts to leverage their collection efforts.
"The industry's practices echo the scandal surrounding
the processing of delinquent mortgages. Here, debt
buyers use 'robo signers' who sign affidavits averring
that they have reviewed and verified debtors' records,
when they have only reviewed basic, and often incomplete,
account statements records or spreadsheets on a computer
screen. Moreover, because consumer debt is being bought
and sold so frequently, and over a period of years,
companies are frequently pursuing the wrong person, or
the filing claims that have no lawful basis.
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"Frequently, these debt collection actions are filed by
debt buyers without proof that the debt ever existed.
Yet actions proceed to judgment because ninety-five
percent of consumers do not respond to these
lawsuits-many because they do not receive notice-allowing
the debt collector to take a default judgment against the
consumer and levy against the consumer's personnel
accounts.
The author maintains that this bill, "The Fair Debt Buyers
Act�,] would reform the debt collection litigation process
in a number of ways to aid consumers and unburden the
courts from costly, unmeritorious litigation."
ARGUMENTS IN OPPOSITION : The California Association of
Collectors (CAC) contends that this bill "confuses and
blends the concepts of debt verification and prove-up
hearings. Debt verification is the requirement on behalf
of the debt owner or collector to demonstrate that the debt
is owed by the consumer. Conversely, to obtain a judgment
at trial or prove-up hearing, the plaintiff must produce
admissible evidence satisfactory to the court that judgment
is property against the named defendants."
The CAC further contends that debtors have the existing
right to make an offer to compromise, and to seek damages
for frivolous lawsuits, and to sue for malicious
prosecution.
DBA International contends that the bill "sets
unprecedented obligations on the entire collection industry
in the judicial system, proposes requirements which go
beyond what is required or even available by the original
creditors, and generally, creates more ambiguity than
solves perceived problems." DBA ? notes that ownership is
established for most purchases by a Bill of Sale and argues
that (1) the bill would eviscerate a judge's right to
evaluate the trustworthiness of the evidence before them;
(2) the itemization requirement is not even imposed upon
originating banks by federal law; (3) the bill approaches
the problem from the wrong perspective since it is the
original creditor that has the information; (4) the FDCPA
already imposes requirements on debt collectors; and (5)
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the bill will cause unnecessary filings of excess
documents.
The California Creditors Bar Association expresses concern
that the bill proposes "extensive regulations for only one
type of debt ownership," would flip the burden of proof
regarding the statute of limitations, "imposes wildly
unreasonable requirements for documentation," and contends
that the liability imposed would be punitive.
RJG:mw 5/17/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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