Yesterday, Governor Newsom of California signed AB 1020 and SB 531 into law. Both laws will impact debt collection activities in California and should be reviewed by both legal counsel and operations to ensure compliance.
California AB 1020 – This law takes effect on January 1, 2022. The law will primarily impact hospitals, collection agencies, and debt buying companies that collect or purchase patient debt. If you do not collect patient debt from hospitals, this law will not apply to your business. The law accomplishes two primary objectives: (1) to ensure hospitals make every effort to identify and accept third-party payments from insurance, charity, or government sources prior to attempting to collect unpaid debts and (2) to ensure collection agencies and debt buyers obtain substantive data and documentation from hospitals related to the debt prior to collection; inform consumers of their rights; and provide consumers with documentation of the debt upon request.
The original bill banned all sales of hospital debt to debt buying companies, but RMAI negotiated the inclusion of language which prohibits a hospital from selling patient debt to a debt buyer, unless all of the following apply:
(1) The hospital has found the patient ineligible for financial assistance or the patient has not responded to any attempts to bill or offer financial assistance for 180 days;
(2) The hospital includes contractual language in the sales agreement in which the debt buyer agrees to return, and the hospital agrees to accept, any account in which the balance has been determined to be incorrect due to the availability of a third-party payer, including a health plan or government health coverage program, or the patient is eligible for charity care or financial assistance;
(3) The debt buyer agrees to not resell or otherwise transfer the patient debt, except to the originating hospital or a tax-exempt organization, or if the debt buyer is sold or merged with another entity;
(4) The debt buyer agrees not to charge interest or fees on the patient debt; and
(5) The debt buyer is licensed as a debt collector by the California Department of Financial Protection and Innovation.
California SB 531 – This law takes effect on July 1, 2022. The law primarily impacts collection agencies but will also indirectly impact originating creditors and debt buying companies who contract with collection agencies due to data sharing. The law will extend the data and documentation requirements that were adopted in the California Fair Debt Buying Practices Act in 2013 to the Rosenthal Fair Debt Collection Practices Act. The law will require collection agencies to provide the following data and documents to consumers within 30-days upon written request or cease collections until the information is provided:
(1) The debt collector has the authorization to assert the rights of the creditor to collect the debt;
(2) The debt balance along with an explanation of the amount, nature, and reason for all interest and fees, if any, imposed by the creditor or any subsequent entities to which the debt was assigned;
(3) The date the debt became delinquent or the date of the last payment;
(4) The name and an address of the creditor and the creditor’s account number associated with the debt;
(5) The name and last known address of the debtor as they appeared in the creditor’s records before the assignment of the debt to the debt collector;
(6) The names and addresses of all persons or entities other than the debt collector to which the debt was assigned;
(7) The California license number of the debt collector; and
(8) A copy of a contract or other document evidencing the debtor’s agreement to the debt.
The law also requires a new consumer notice in 12-point font to be included in the first written communication with the consumer notifying them of their rights to request the aforementioned data and documents.
Debt buying companies that are compliant with the California Fair Debt Buying Practices Act are automatically deemed to be compliant with this new law. This exemption was negotiated by RMAI.
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.