The California bill signing deadline each year is September 30th which results in a flurry of activity in the Governor’s office after the legislature adjourns in August. In just the final five days in September alone, the Governor signed over 500 bills into law. Among those bills, there were six that have implications for the receivables industry. With the exception of AB 156, all of the bills have effective dates in 2023. A high-level summary of these bills is provided below. RMAI encourages its members to share this Member Alert with those within your business who are responsible for legal, compliance, and operations.
California AB 156 [Chapter 569] Effective: September 27, 2022
Requires the commissioner to allow a debt collector that submits a California Debt Collection Licensing Act application before January 1, 2023, to operate pending the approval or denial of the application. The bill would also authorize the commissioner to issue a conditional license to an applicant pending the receipt and review of the fingerprint images and related information. [RMAI was supportive of extending the application date due to the challenges the Department of Financial Protection and Innovation has had in launching the debt collection license.]
California AB 2424 [Chapter 965] Effective: January 1, 2023
Provides additional requirements impacting the activities of credit services organizations. Specifically, credit service organizations would be required to: (1) provide a monthly statement to the consumer detailing the services performed; (2) redact the personal information of consumer as specified; (3) make written communications sent on behalf of consumers available to the consumer; and (4) provide sufficient information in the first written communication to be able to investigate an account. Additionally, credit service organizations would be prohibited from: (1) making, counseling, or advising a consumer to make, a statement that is untrue or misleading to a data furnisher and (2) communicating without the prior written authorization of the consumer. [The receivables industry championed the introduction and passage of this legislation to help curtail certain abusive practices that many businesses have had to deal with over the past decade.]
California SB 975 [Chapter 989] Effective: July 1, 2023
Requires creditors/debt collectors to cease collection activities upon receipt of documentation or a sworn written certification of a coerced debt until a review is performed. The bill would also allow a debtor to bring an action or a claim against a creditor/debt collector to establish that a particular debt is coerced. If a debtor establishes that a particular debt is coerced, the bill: (1) would entitle the debtor to specified relief, including an injunction prohibiting the creditor/debt collector from holding or attempting to hold the debtor personally liable on the debt, and (2) would require the court to issue a judgment in favor of the creditor/debt collector against any person who coerced the debtor into incurring the debt. [The broader financial services industry opposed this bill when introduced because it permitted those with unqualified backgrounds to determine the existence of a coerced debt and transferred the loss to the banks with zero consequences to the person who caused the coercion. After extensive lobbying which included RMAI’s California lobbyist, the bill was amended to require courts to issue a judgment against the person who caused the coercion as part of the proceeding that finds the existence of a coerced debt.]
California SB 1099 [Chapter 716] Effective: January 1, 2023
Provides that neither the act of filing a bankruptcy petition by the buyer or other person liable on a motor vehicle sales contract nor the status of either of those persons as a debtor in bankruptcy constitutes a default in the performance of any of the buyer’s obligations under the contract and neither may be used as a basis for accelerating the maturity of any part or all of the amount due under the contract or for repossessing the motor vehicle. Based on this law, the provisions and interpretation of 11 U.S.C. Sec. 521 may have limited impact on California bankrupt debtors. Where Sec. 521 required a debtor, on secured debt to either reaffirm, redeem, or surrender the collateral within the bankruptcy case, California law now provides for a ride through, and a debtor can selectively choose the “Fourth Option “of retain and pay. The California law now directly conflicts with the Federal Bankruptcy Code which could set up further challenges. [This bill was strongly opposed by the Trustees for Reasonable Homestead Exemption Limits. RMAI and the receivables industry backed the position taken by the trustees.]
California SB 1200 [Chapter 883] Effective: January 1, 2023
Reduces the post-judgment interest rate from 10% to 5% for: (1) a money judgment under $200,000 that remains unsatisfied for a claim related to medical expenses and (2) for a money judgment under $50,000 that remains unsatisfied for a claim related to personal debt. The bill would also limit the aforementioned judgments to 10 years with one five-year renewal. [When the bill was initially introduced, the author was seeking to reduce the interest rate to 3% with no renewal of judgments but RMAI and an industry coalition fought hard to obtain the higher interest rate and the five-year judgment renewal.]
California SB 1477 [Chapter 849] Effective: September 1, 2023
Increases the disposable earnings that are exempt from wage garnishment by increasing the minimum wage multiplier from 40x to 48x. This bill would also limit earnings that can be garnished above the statutory exemption to 40% until that exceeds 20% of weekly disposable income. [This legislation was RMAI’s top concern in the California legislature when it was introduced because the author was seeking an 80x minimum wage multiplier which would effectively end garnishments in the State of California. While this law moves California to one of the highest exemption rates in the nation, the outcome was much better than the initial proposal due to the efforts of RMAI and a coalition of lobbyists from the financial services industry and the state’s business community to amend the bill.]
This Member Alert is intended for members of the Receivables Management Association International, is for informational purposes only, and is in no way intended to provide legal advice. Members are encouraged to consult with an attorney of their choice for legal advice concerning this matter.