The Fair Debt Buying Practices Act of 2013 (Senate Bill 233) was signed by Governor Brown last month. The Act will apply to debts sold or resold on or after Jan. 1, 2014. Purpose: The Act will regulate the activities of persons and entities that purchase delinquent or charged-off consumer debt by requiring specific documentation to be maintained by the industry. State law does not currently specify the documentation that a debt buyer must maintain. Documentation used to support the collection of a debt must be sufficient to prove that the alleged debtor is in fact the individual associated with the original contract or agreement, and that the amount of indebtedness is accurate. The Act will create documentation and process standards for the collection of consumer debt. The act is intended to impose enforceable standards on the collection and litigation of consumer debt purchased by a debt buyer after it is charged off by a creditor. Definitions: Debt Buyer: a person or entity that is regularly engaged in the business of purchasing charged-off consumer debt for collection purposes, whether it collects the debt itself, hires a third party for collection, or hires an attorney-at-law for collection litigation. “Debt buyer” does not mean a person or entity that acquires a charged-off consumer debt incidental to the purchase of a portfolio predominantly consisting of consumer debt that has not been charged off. Charged-off consumer debt: a consumer debt that has been removed from a creditor’s books as an asset and treated as a loss or expense. Summary of Requirements: California debt buyers will be required to possess a substantial list of account information prior to beginning collection efforts. The Act prohibits a debt buyer from making any written statement in an attempt to collect a debt unless the debt buyer possesses proof that the debt buyer is the sole owner of the account, the balance of the account at charge-off, date of default or date of last payment, the name and address of the charge-off creditor, the last known address of the consumer and a complete chain of title for accounts that have changed hands multiple times. The Act will also require a debt buyer to have access to a copy of a contract or other document evidencing the consumer’s agreement to the debt. If no signed contract or agreement exists, the debt buyer must have access to a copy of a document provided to the consumer while the account was active, demonstrating that the debt was incurred. Debt buyers must provide consumers all of the above information upon a consumer’s written request for verification. If the information is not provided to the consumer within 15 calendar days, the debt buyer must cease collection efforts until the information is provided. A debt buyer must provide the following disclosure in its initial written communication to consumers:
“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].
The Act also requires certain disclosures be made to consumers in initial communications for debts that are beyond the applicable statute of limitations. For debts that are beyond the statute of limitations, but still within the credit reporting period under the Fair Credit Reporting Act (FCRA), the debt buyer must make the following disclosure:
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.
If the debt is beyond the statute of limitations and the credit reporting period under the FCRA, the debt buyer must make the following disclosure:
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.
The Act also includes language requirements if a language other than English is used in the initial communication, and sets certain receipt requirements when the debt is paid or settled. The Act also specifically prohibits the resale of debts that have been paid or settled. Additionally, the Act amends the state rules of civil procedure to require certain information to be included in the complaint when suit is filed against a consumer to collect a debt.
The Act provides consumers with a private right of action, and includes penalties for violations of up to $1,000 for individual litigants, and for class action suits, up to an additional $500,000 or 1% of the debt buyer’s net worth (whichever is less).
Similar to the FDCPA, this Act also features a bona fide error provision which protects a debt buyer from liability for a good faith error which occurred despite policies designed to prevent the error.
Recovery under the RFDCPA or RDCPA precludes recovery for the same acts in an action brought under the Fair Debt Buying Practices Act. Impact on Creditors The Fair Debt Buying Practices Act does not apply to creditors who are not, as defined under the Act, “Debt Buyers” that regularly engage in the business of purchasing charged-off consumer debt. Also, the Act excludes a creditor that acquires a charged-off consumer debt incidental to the purchase of a portfolio predominantly consisting of consumer debt that has not been charged off. For further information on the Fair Debt Buying Practices Act, contact An Le at ale@severson.com