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: 5/27/11
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;
and (5) requiring a dismissal of the action, with
prejudice, if a debt buyer seeks a default judgment without
complying with specified requirements.
Senate Floor Amendments of 5/27/11 (1) clarify the
documentation requirements, provide the debt buyer with
greater time to respond to requests for that documentation,
and require the debt buyer to provide a specified
CONTINUED
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disclosure in a communication regarding time barred debt;
(2) require settlement agreements to be in writing, clarify
the required contents of a debt buyer's complaint, permit a
court to dismiss an action with or without prejudice if a
debt buyer seeking a default judgment does not comply with
specified requirements, and require a court to determine
that the statute of limitations has not expired prior to
entering judgment, as specified; (3) reduce the allowable
damages from $5,000 to $2,000 per violation, specify the
additional permitted recovery for class actions, and permit
a prevailing debt buyer to recover attorney's fees if an
action was brought in bad faith for the purpose of
harassment; (4) revise the requirement that judgment be
entered for the debtor if debt buyer is not prepared to
proceed for trial by, instead, permitting the court, in its
discretion, to dismiss the action with or without
prejudice, as specified; and (5) make other technical,
clarifying changes.
ANALYSIS : Existing state and federal law regulate the
practice of debt collection. Existing state law prohibits
a debt collector from engaging in specified conduct,
including the use of threats or causing a telephone to ring
repeatedly to annoy the person called. Existing law
prohibits a debt collector from obtaining an affirmation
from a debtor of a consumer debt that has been discharged
in bankruptcy, without clearly and conspicuously disclosing
to the debtor, in writing, the fact that the debtor is not
legally obligated to make such affirmation.
This bill enacts the Fair Debt Buyers Practices Act, which
regulates the activities of a person or entity that has
bought consumer debt and the circumstances in which the
person may bring suit. This bill prohibits a "debt buyer",
as defined, from making any written statement in an attempt
to collect a consumer debt unless the debt buyer has valid
evidence in the form of business records that the debt
buyer is the sole owner of the specific debt at issue , the
amount of the debt, and the name of the creditor at the
time the debt was charged off, among other things. This
bill requires the debt buyer to make this evidence
available to the debtor, without charge, upon receipt of a
request, within 15 days. This bill prohibits a debt buyer
from communicating with a debtor in writing without
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providing a specified notice. This bill requires all
settlement agreements between a debt buyer and a debtor to
be in writing and requires a debt buyer who receives a
payment on a debt to provide a receipt or statement
containing certain information. This bill prohibits a debt
buyer from initiating a suit to collect a debt if the
statute of limitations on the cause of action has expired.
This bill prescribes penalties for a violation of the act
and provides that its provisions may not be waived. This
bill requires a debt buyer bringing an action on consumer
debt to include certain information in his or her
complaint. This bill prohibits an entry of judgment in
favor of a plaintiff debt buyer unless properly
authenticated business records relating to the debt and
ownership of it, among other things, are properly in
evidence, and would permit a court to
dismiss a debt buyer's action to collect with prejudice if
this information is not provided or if the debt buyer fails
to appear or is not prepared on the date scheduled for
trial.
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.
This bill requires, in the circumstances described above,
that a copy of the form that the judgment debtor may use to
make a claim of exemption and a copy of the form used to
provide a financial statement also be provided.
As used in this bill, "debt buyer" means a person or entity
that regularly purchases charged-off consumer loans or
consumer credit accounts, or other delinquent consumer
debt. "Debt buyer" includes a person acting on behalf of a
debt buyer.
This bill provides that its provisions are severable. If
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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
they know or should know is time-barred."
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
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SUPPORT : (Verified 5/31/11)
Attorney General Kamala Harris (source)
Alexander Community Law Center
American Federation of State, County and Municipal
Employees
California Reinvestment Coalition
Consumer Federation of California
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
Public Counsel Law Center of Los Angeles
Public Law Center of Orange County
Service Employees International Union
OPPOSITION : (Verified 5/31/11)
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
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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.
"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
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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)
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 5/31/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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