The California General Assembly Monday unanimously passed a bill that requires debt buyers in the state to have in their possession a long list of account information before debt collection efforts can begin. The new law also mandates specific disclosure language debt buyers must use in collection communications.
I contacted George Cohn, Senior Attorney with Collection Lawyers and author of the NL white paper about California debt collection law, and asked him to comment on the Bill. What follows is an edited version of his response. All of the information he provided has been added as a new white paper, California Debt Buying Practices Act (FDBPA), which is a supplement to the CA White Paper on the NL website.
From George Cohn:
California Senate Bill 233, sponsored by CA State Attorney General Kamala Harris, and authored by State Senator Mark Leno, was signed into law by Governor Jerry Brown on 7/11/13. The California Debt Buying Practices Act (FDBPA) will become effective on 1/1/14. The FDBPA imposes substantial new restrictions, requirements and mandated disclosures by debt buyers in CA. It also creates new liability for debt buyers.
As of 1/1/14, debt buyers pursuing California debtors will need documentation in their possession even before they can send the initial demand letter to initiate collection activity on a debt. Debt buyers and debt sellers will have to coordinate transmission of a specific list of additional information and some documentation in every portfolio.
“Chain of ownership” must be provided, and suit must be filed before the statute of limitation expires. Complaints must contain detailed information, and include a copy of any underlying written agreement with the debtor. (See California Debt Buying Practices Act (FDBPA) for the full list of documents and notices now required.)
Economic Implications of the FDBPA
The market value of CA portfolios bought or sold after 1/1/14 that do not have the requisite information and documentation may be substantially impaired. Because the FDBPA will not apply to portfolios bought and sold prior to 1/1/14, debt buyers should attempt to close transactions before the FDBPA’s effective date. In addition, proof should be readily available to be able to forestall subsequent liability claims.
The marketability of portfolios without the requisite documentation will most likely lessen over time. CA claims are generally between 8-12% of many national portfolios. A debtor moving from another state to CA would be protected by the FDBPA. Therefore, debt buyers will probably demand detailed information for entire acquired portfolios.
It is probable CA judges will assume that this level of documentation will be required and is readily available in all purchased transactions, and CA courts could require the same level of documentation and disclosures in many other consumer transactions. The FDBPA will require that debt buyers implement requisite new procedures and confirm compliance.
New Potential Liability
If actual damages cannot be determined, statutory damages will be a minimum $100 – maximum $1,000, plus attorney’s fees. In a class action suit, damages are not to exceed the lesser of $500,000 or one percent of the net worth of the debt buyer.
A debt buyer can obtain attorney’s fees upon a finding by the court that the plaintiff’s prosecution of the action was not in good faith, a bona fide error defense is available, and recovery is precluded if sought under FDCPA or California Rosenthal Fair Debt Collection Practices Act. Civil Code § 1788.62
Trial Appearance and Preparation
If the defendant debtor appears for trial on the scheduled trial date, and the plaintiff debt buyer either fails to appear or is not prepared to proceed to trial, the court may dismiss the action with or without prejudice. The court may also award the defendant debtor’s costs of preparing for trial, including, but not limited to, lost wages and transportation expenses.
The days of collecting debt based on a disk containing merely the debtor’s name, social security number, address, account number and amount owing are gone in California.
The FDBPA will make debt collection more expensive and difficult. It creates new potential liability, as debtors may carefully evaluate every single receipt for payment to confirm compliance. The FDBPA will adversely affect the marketability of existing portfolios that do not contain the requisite information. In addition, even portfolios that are not subject to the FDBPA (purchased prior to 1/1/14) may give rise to liability, with debtors inaccurately assuming that the debt is subject to the FDBPA. Compliance and training will continue to be a major factor in all competent creditors’ operations.
By George L. Cohn, Senior Attorney with Collection Lawyers
with Marti Lythgoe, NL Editor