California “Fair Debt Buying Practices Act” Signed Into Law

Today, California Governor Jerry Brown signed into law the “Fair Debt Buying Practices Act” (Senate Bill 233). DBA worked with an industry coalition to secure reasonable amendments to the bill during a lengthy negotiation process with the author, the California Attorney General, and consumer groups. DBA International would encourage every debt buyer to become familiar with provisions of this law.

Here is a high level summary of the Fair Debt Buying Practices Act:

  • APPLICABILITY – The law only applies to consumer debt that is sold or resold on or after January 1, 2014. The law does not apply to any of your existing account portfolios nor any new accounts you purchase up to December 31, 2013.
  • INFORMATION – The law requires debt buyers to possess the following information prior to any attempt to collect on a debt:
    • Documentation that shows that they have authority to assert all rights on the debt.
    • The debt balance at charge off and an explanation of the amount, nature, and reason for all post-charge-off interest and fees. Please note that this provision does not require a specific itemization of interest and fees – only the total of any post-charge-off interest and the total of any post-charge-off fees.
    • The date of default or the date of the last payment.
    • The name and an address of the charge-off creditor at the time of charge off, and the charge-off creditor’s account number associated with the debt.
    • The name and last known address of the debtor as they appeared in the charge-off creditor’s records prior to the sale of the debt. Please note, if the debt was originally sold by the originating creditor prior to January 1, 2014, the name and last known address of the debtor as they appeared in the debt owner’s records on December 31, 2013 will be sufficient.
    • The names and addresses of all persons or entities that purchased the debt after charge off, including the debt buyer making the written statement.
  • DOCUMENTS – The law requires debt buyers to have access to a copy of a contract or other document evidencing the debtor’s agreement to the debt prior to any attempt to collect on a debt. For a revolving credit account, the most recent monthly statement recording a purchase transaction, last payment, or balance transfer shall be deemed sufficient to satisfy this requirement. Please note that “access” allows for the contract or other document to be maintained by the originating creditor or another entity.
  • CONSUMER REQUEST – The law requires debt buyers to provide the information or documents identified above to the debtor without charge within 15 calendar days of receipt of a debtor’s written request for information regarding the debt or proof of the debt. If the debt buyer cannot provide the information or documents within the 15 day period, the debt buyer must cease collection of the debt until such information is provided. Please note that the consumer request must otherwise be consistent with the validation requirements of the FDCPA which means that the consumer request must be in writing and made within 30 days of the initial written communication. In a first in the nation provision, a debt buyer may (it is not required) provide an active email address to which these requests can be sent and through which information and documents can be delivered, if the parties agree.
  • NOTICES – The law requires debt buyers to provide two specific notice statements in its first written communication with the debtor; however, there is no requirement that it be contained on the first page of the communication.
    • The first notice reads:
      “You may request records showing the following: (1) that [insert name of debt buyer] has the right to seek collection of the debt; (2) the debt balance, including an explanation of any interest charges and additional fees; (3) the date of default or the date of the last payment; (4) the name of the charge-off creditor and the account number associated with the debt; (5) the name and last known address of the debtor as it appeared in the charge-off creditor’s or debt buyer’s records prior to the sale of the debt, as appropriate; and (6) the names of all persons or entities that have purchased the debt. You may also request from us a copy of the contract or other document evidencing your agreement to the debt.” “A request for these records may be addressed to: [insert debt buyer’s active mailing address and email address, if applicable].”
    • When collecting on debt where the Statute of Limitations has run and where the 7 year reporting period to credit bureaus has not expired, the second notice reads:
      “The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it. If you do not pay the debt, [insert name of debt buyer] may [continue to] report it to the credit reporting agencies as unpaid for as long as the law permits this reporting.”
    • When collecting on debt where the Statute of Limitations has run and where the 7 year reporting period to credit bureaus has expired
    • The second notice reads:
      “The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it, and we will not report it to any credit reporting agency.”
  • LEGAL ACTION – If a debt buyer brings an action against the consumer, the complaint must allege all of the information that is required to be possessed prior to any collection attempt (see above) as well as:
    • Indicate plaintiff is a debt buyer,
    • Indicate the nature of the underlying debt and the consumer transaction or transactions from which it is derived, in a short and plain statement, and
    • Attach a copy of the contract or other document evidencing the debtor’s agreement (see above).
  • SETTLEMENTS – All settlement agreements must be documented in open court or otherwise reduced to writing. Debt buyers must ensure that a copy of the written agreement is provided to the debtor.
  • RECEIPTS – A debt buyer that receives payment on a debt must provide, within 30 calendar days, a receipt or monthly statement, to the debtor. The law allows for this to be provided electronically if the parties agree.
  • OUT OF STATUTE DEBT – A debt buyer may not bring suit or initiate arbitration or other legal proceeding to collect a consumer debt if the applicable statute of limitations on the debt buyer’s claim has expired. However, there is no prohibition on contacting the debtor to request payment after the statute of limitation has expired.