The Rosenthal Fair Debt Collection Practices Act regulates the practice of debt collection and the conduct of debt collectors, as defined. The act prohibits specified conduct by a debt collector in connection with the collection or attempted collection of a consumer debt. The act provides for enforcement by means of civil penalties and damages, as specified.

This bill would prohibit a debt collector from sending a written communication to a debtor attempting to collect a time-barred debt without providing specified written notices stating that the debtor may not be sued for the debt, but that the debt, depending on its age, may be reported as unpaid to credit reporting agencies, as specified.

Existing law prescribes periods for commencement of various actions. Among others, an action must be commenced within 4 years if the action is to recover (1) upon a book account whether consisting of one or more entries; (2) upon an account stated based upon an account in writing, but the acknowledgment of the account stated need not be in writing; or (3) a balance due upon a mutual, open and current account, the items of which are in writing. Existing law provides, however, that where an account stated is based upon an account of one item, the time shall begin to run from the date of the item, and where an account stated is based upon an account of more than one item, the time shall begin to run from the date of the last item.

This bill would specify that when the 4-year period in which an action must be commenced has run, no person may bring suit or initiate an arbitration or other legal proceeding to collect the debt. This bill would provide that the period may be extended only in specified circumstances.

The Rosenthal Fair Debt Collection Practices Act regulates the practice of debt collection and the conduct of debt collectors, as defined. The act prohibits specified conduct by a debt collector in connection with the collection or attempted collection of a consumer debt. The act provides for enforcement by means of civil penalties and damages, as specified.

This bill would prohibit a debt collector from sending a written communication to a debtor attempting to collect a time-barred debt without providing specified written notices stating that the debtor may not be sued for the debt, but that the debt, depending on its age, may be reported as unpaid to credit reporting agencies, as specified.

Existing law prescribes periods for commencement of various actions. Among others, an action must be commenced within 4 years if the action is to recover (1) upon a book account whether consisting of one or more entries; (2) upon an account stated based upon an account in writing, but the acknowledgment of the account stated need not be in writing; or (3) a balance due upon a mutual, open and current account, the items of which are in writing. Existing law provides, however, that where an account stated is based upon an account of one item, the time shall begin to run from the date of the item, and where an account stated is based upon an account of more than one item, the time shall begin to run from the date of the last item.

This bill would specify that when the 4-year period in which an action must be commenced has run, no person may bring suit or initiate an arbitration or other legal proceeding to collect the debt. This bill would provide that the period may be extended only in specified circumstances.

The Rosenthal Fair Debt Collection Practices Act regulates the practice of debt collection and the conduct of debt collectors, as defined. The act prohibits specified conduct by a debt collector in connection with the collection or attempted collection of a consumer debt. The act provides for enforcement by means of civil penalties and damages, as specified.

This bill would prohibit a debt collector from sending a written communication to a debtor attempting to collect a time-barred debt without providing specified written notices to the debtor indicating stating that the debtor may not be sued for the debt, but that the debt, depending on its age, may be reported as unpaid to credit reporting agencies, as specified.

Existing law prescribes periods for commencement of various actions. Among others, an action must be commenced within 4 years if the action is to recover (1) upon a book account whether consisting of one or more entries; (2) upon an account stated based upon an account in writing, but the acknowledgment of the account stated need not be in writing; or (3) a balance due upon a mutual, open and current account, the items of which are in writing. Existing law provides, however, that where an account stated is based upon an account of one item, the time shall begin to run from the date of the item, and where an account stated is based upon an account of more than one item, the time shall begin to run from the date of the last item.

This bill would specify that when the four-year 4-year period in which an action must be commenced has run, no person may bring suit or initiate an arbitration or other legal proceeding to collect the debt. This bill would provide that the period may be extended only in specified circumstances.

The Rosenthal Fair Debt Collection Practices Act regulates the practice of debt collection and the conduct of debt collectors, as defined. The act prohibits specified conduct by a debt collector in connection with the collection or attempted collection of a consumer debt. The act provides for enforcement by means of civil penalties and damages, as specified.

This bill would prohibit a debt collector from attempting to collect a time-barred debt without providing specified written notices to the debtor indicating that the debtor may not be sued for the debt, but that the debt, depending on its age, may be reported as unpaid to credit reporting agencies, as specified.

Existing law prescribes periods for commencement of various actions. Among others, an action must be commenced within 4 years if the action is to recover (1) upon a book account whether consisting of one or more entries; (2) upon an account stated based upon an account in writing, but the acknowledgment of the account stated need not be in writing; or (3) a balance due upon a mutual, open and current account, the items of which are in writing. Existing law provides, however, that where an account stated is based upon an account of one item, the time shall begin to run from the date of the item, and where an account stated is based upon an account of more than one item, the time shall begin to run from the date of the last item.

This bill would provide that where a book account or account stated is based upon an account of more than one item, the time shall run separately for each transaction. This bill would specify that when the four-year period in which an action must be commenced has run, no person may bring suit or initiate an arbitration or other legal proceeding to collect the debt. This bill would provide that the period may be extended only in specified circumstances.

Existing law prescribes periods for commencement of various actions. Among others, an action upon a written contract, book account, as defined, or the rescission of a written contract must be commenced within 4 years. Existing law defines the term book account for these purposes. years if the action is to recover (1) upon a book account whether consisting of one or more entries; (2) upon an account stated based upon an account in writing, but the acknowledgment of the account stated need not be in writing; or (3) a balance due upon a mutual, open and current account, the items of which are in writing. Existing law provides, however, that where an account stated is based upon an account of one item, the time shall begin to run from the date of the item, and where an account stated is based upon an account of more than one item, the time shall begin to run from the date of the last item.

This bill would require that an action based upon a consumer debt, as defined, must be commenced within 4 years. The bill would specify that the time begins to run from the date of default or the date of the last payment, whichever is earlier. The bill would provide that the debt is extinguished when the statute of limitations has run, and would prohibit reporting the debt to a consumer credit reporting agency or collecting upon it in any action, including a judicial proceeding. The bill would also exclude consumer debts, as defined in existing law, from the definition of the term book account. provide that where a book account or account stated is based upon an account of more than one item, the time shall run separately for each transaction. This bill would specify that when the four-year period in which an action must be commenced has run, no person may bring suit or initiate an arbitration or other legal proceeding to collect the debt. This bill would provide that the period may be extended only in specified circumstances.

Existing law, the Mello-Granlund Older Californians Act, establishes programs for older individuals and other populations served by the California Department of Aging. Existing law requires the department to coordinate with other state departments to, among other things, ensure that health and social services are available to allow older individuals to live independently at home or with others. Existing law establishes community-based services programs for these purposes. In many of these programs, existing law encourages the maintenance of family and caregiver support groups.

This bill would declare the intent of the Legislature to enact legislation to provide resources for caregivers and relative caregivers.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1526

Author:(Kalra)

As Amended Ver:June 27, 2018

Majority vote

Original Committee Reference: B. & F.

SUMMARY: Requires debt collectors to provide certain notices to consumers when attempting to collect on time-barred debts. It also provides that the limitations period on commencing actions to collect on certain debts is an outright bar on initiating such proceedings, rather than allowing the expiration of the statute of limitations to serve simply as an affirmative defense. Specifically, this bill:

1. Provides that a debt collector shall not collect or attempt to collect a consumer debt by sending a written communication to a debtor in an attempt to collect a time-barred debt without providing the debtor with the following written notice:

If the debt is not past the date for obsolescence set forth in Section 605(a) of the federal Fair Credit Reporting Act (15 United States Code Section 1681(c)), the following notice shall be included in the first written communication provided to the debtor after the debt has become time-barred

1. Defines "first written communication" to mean the first communication sent to the debtor in writing or by facsimile, email, or other similar means.
2. Provides that when the period in which an action must be commenced under Code of Civil Procedure Section 337 has run, a person shall not bring suit or initiate an arbitration or other legal proceeding to collect the debt. The period in which an action may be commenced under this section shall only be extended pursuant to Code of Civil Procedure Section 360.

The Senate amendments are technical and clarifying in nature.

FISCAL EFFECT: None. This bill has been keyed non-fiscal by Legislative Counsel.

COMMENTS: The sponsor, the Western Center on Law and Poverty states:

Currently, California consumers must know how to raise the statute of limitations as an affirmative defense when being sued on a time-barred debt, unless the person filing suit also happens to be a debt buyer. In 2013, California passed the Fair Debt Buying Practices Act, SB 233 (Leno) [Chapter 64, Statutes of 2013], which put new rules on debt buyers, including, among other things, an outright preclusion on the filing of lawsuits after the statute of limitations has run. However, this law did not apply to debt collectors and original creditors. AB 1526 closes this loophole and makes the statute of limitations do what most people think it already does – stop a consumer from being sued once the debt is too old to enforce.

The Senate Judiciary Committee's analysis of SB 233 indicated that a large percentage of debt collection actions were resulting in default judgments. The analysis pointed to an Federal Trade Commission report that collectors were regularly suing consumers on time-barred debts. The analysis pointed out that "[w]hen those consumers fail to respond, there is no advocate to raise, on their behalf, applicable defenses or challenge the assertions made by the debt buyer." Therefore, even where these consumers would have a successful affirmative defense based on the statute of limitations, they were failing to appear or to assert the defense. Therefore, courts were granting default judgments on time-barred debts.

To address these issues, SB 233 prohibited a debt buyer from bringing suit or initiating an arbitration or other legal proceeding to collect a consumer debt if the applicable statute of limitations has expired, and required a debt buyer to notify a debtor if a debt is time-barred.

This bill applies similar provisions to debt collectors. It includes a provision in Code of Civil Procedure Section 337, which governs the statute of limitations for liability on various debts, that prohibits an action from being brought once the applicable four-year limitations period has run, unless otherwise agreed to by the parties. This essentially makes the statute of limitations defense on such claims self-executing, ensuring that consumers are not being held liable on stale claims.

This bill also provides that a debt collector shall not collect or attempt to collect a consumer debt by sending a written communication to a debtor in an attempt to collect a time-barred debt without providing certain written notices. If such debts are not past the date of obsolescence, the collector is required to notify the consumer that the debt cannot be sued on but may be reported to a credit reporting agency. If it is past the date of obsolescence, the collector must inform the consumer that the debt cannot be sued on and will not be reported to a credit reporting agency.

This ensures that consumers are made fully aware of their rights when a debt collector is attempting to collect on a time-barred debt. The consumer is made aware of when a debt cannot be sued upon and whether such debt can be reported to a credit reporting agency.

Analysis Prepared by: William Herms / B. & F. / (916) 319-3081 FN: 0003825

 CONSENT  

Bill No: AB 1526

Author:

:

Vote:

SENATE JUDICIARY COMMITTEE: 7-0, 7/3/18

AYES: Jackson, Moorlach, Anderson, Hertzberg, Monning, Stern, Wieckowski

ASSEMBLY FLOOR: 75-0, 1/29/18 (Consent) - See last page for vote

SUBJECT:

SOURCE: Western Center on Law and Poverty

DIGEST:

This bill requires debt collectors to provide certain notices to consumers when attempting to collect on time-barred debts. It also provides that the limitations period on commencing actions to collect on certain debts is an outright bar on initiating such proceedings, rather than allowing the expiration of the statute of limitations to serve simply as an affirmative defense.

ANALYSIS:

Existing law:

1. Provides that a debt buyer shall not bring suit or initiate an arbitration or other legal proceeding to collect a consumer debt if the applicable statute of limitations on the debt buyer’s claim has expired. (Civ. Code Sec. 1788.56.)
2. Provides that no debt collector shall collect or attempt to collect a consumer debt by means of the following practices:

• obtaining an affirmation from a debtor of a consumer debt which has been discharged in bankruptcy, without clearly and conspicuously disclosing to the debtor, in writing, at the time such affirmation is sought, the fact that the debtor is not legally obligated to make such affirmation;
• collecting or attempting to collect from the debtor the whole or any part of the debt collector’s fee or charge for services rendered, or other expense incurred by the debt collector in the collection of the consumer debt, except as permitted by law; or
• initiating communications, other than statements of account, with the debtor with regard to the consumer debt, when the debt collector has been previously notified in writing by the debtor’s attorney that the debtor is represented by such attorney with respect to the consumer debt and such notice includes the attorney’s name and address and a request by such attorney that all communications regarding the consumer debt be addressed to such attorney, unless the attorney fails to answer correspondence, return telephone calls, or discuss the obligation in question, unless prior approval has been obtained from the debtor’s attorney, or the communication is a response in the ordinary course of business to a debtor’s inquiry. (Civ. Code Sec. 1788.14.)

1. Provides that a party must commence the following actions within four years:

• an action upon any contract, obligation or liability founded upon an instrument in writing, except as provided in Section 336a of the Civil Code; provided, that the time within which any action for a money judgment for the balance due upon an obligation for the payment of which a deed of trust or mortgage with power of sale upon real property or any interest therein was given as security, following the exercise of the power of sale in such deed of trust or mortgage, may be brought shall not extend beyond three months after the time of sale under such deed of trust or mortgage;
• an action to recover (1) upon a book account whether consisting of one or more entries; (2) upon an account stated based upon an account in writing, but the acknowledgment of the account stated need not be in writing; (3) a balance due upon a mutual, open and current account, the items of which are in writing; provided, however, that where an account stated is based upon an account of one item, the time shall begin to run from the date of said item, and where an account stated is based upon an account of more than one item, the time shall begin to run from the date of the last item; and
• an action based upon the rescission of a contract in writing. The time begins to run from the date upon which the facts that entitle the aggrieved party to rescind occurred. Where the ground for rescission is fraud or mistake, the time does not begin to run until the discovery by the aggrieved party of the facts constituting the fraud or mistake. Where the ground for rescission is misrepresentation under Section 359 of the Insurance Code, the time does not begin to run until the representation becomes false. (Code Civ. Proc. Sec. 337.)

1. Defines “debt collector” as any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection. The term includes any person who composes and sells, or offers to compose and sell, forms, letters, and other collection media used or intended to be used for debt collection, but does not include an attorney or counselor at law. (Civ. Code Sec. 1788.2.)

This bill:

1. Provides that a debt collector shall not collect or attempt to collect a consumer debt by sending a written communication to a debtor in an attempt to collect a time-barred debt without providing the debtor with one of the following written notices:

• if the debt is not past the date for obsolescence set forth in Section 605(a) of the federal Fair Credit Reporting Act (15 U.S.C. Sec. 1681c), the following notice shall be included in the first written communication provided to the debtor after the debt has become time-barred:

“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 collector] 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 past the date for obsolescence set forth in Section 605(a) of the federal Fair Credit Reporting Act (15 U.S.C. Sec. 1681c), the following notice shall be included in the first written communication provided to the debtor after the date for obsolescence:

“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.”

1. Defines “first written communication” to mean the first communication sent to the debtor in writing or by facsimile, email, or other similar means.
2. Provides that when the period in which an action must be commenced under Section 337 of the Code of Civil Procedure has run, a person shall not bring suit or initiate an arbitration or other legal proceeding to collect the debt. The period in which an action may be commenced under this section shall only be extended pursuant to Section 360 of the Code of Civil Procedure.

Background

Debt buyers are companies that purchase delinquent or charged-off debts from a creditor for a fraction of the face value of the debt. Several years ago, these companies became subject to increased scrutiny due to numerous complaints on behalf of consumers.

In response, SB 233 (Leno and Correa, Chapter 64, Statutes of 2013), sponsored by Attorney General Kamala Harris, established the Fair Debt Buying Practices Act. The Act made numerous changes relating to debt buyers, including prohibiting a debt buyer from making a written statement to collect a consumer debt without possessing specific information, requiring a complaint in an action to collect on a consumer debt to include specific allegations, and prohibiting a debt buyer from bringing suit if the applicable statute of limitations has expired.

This bill applies similar limitations on debt collectors.

Comments

The sponsor, the Western Center on Law and Poverty states:

Currently, California consumers must know how to raise the statute of limitations as an affirmative defense when being sued on a time-barred debt, unless the person filing suit also happens to be a debt buyer. In 2013, California passed the Fair Debt Buying Practices Act, SB 233 (Leno), which put new rules on debt buyers, including, among other things, an outright preclusion on the filing of lawsuits after the statute of limitations has run. However, this law did not apply to debt collectors and original creditors. AB 1526 closes this loophole and makes the statute of limitations do what most people think it already does – stop a consumer from being sued once the debt is too old to enforce.

Protecting consumers from certain debt collection practices

The Senate Judiciary Committee’s analysis of SB 233 (Leno and Correa, Chapter 64, Statutes of 2013) indicated that a large percentage of debt collection actions were resulting in default judgments. The analysis pointed to an FTC report that collectors were regularly suing consumers on time-barred debts. The analysis pointed out that “[w]hen those consumers fail to respond, there is no advocate to raise, on their behalf, applicable defenses or challenge the assertions made by the debt buyer.” Therefore, even where these consumers would have a successful affirmative defense based on the statute of limitations, they were failing to appear or to assert the defense. Therefore, courts were granting default judgments on time-barred debts.

To address these issues, SB 233 prohibited a debt buyer from bringing suit or initiating an arbitration or other legal proceeding to collect a consumer debt if the applicable statute of limitations has expired, and required a debt buyer to notify a debtor if a debt is time-barred.

This bill applies similar provisions to debt collectors. It includes a provision in Section 337 of the Code of Civil Procedure, which governs the statute of limitations for liability on various debts, that prohibits an action from being brought once the applicable four-year limitations period has run, unless otherwise agreed to by the parties. This essentially makes the statute of limitations defense on such claims self-executing, ensuring that consumers are not being held liable on stale claims.

This bill also provides that a debt collector shall not collect or attempt to collect a consumer debt by sending a written communication to a debtor in an attempt to collect a time-barred debt without providing certain written notices. If such debts are not past the date of obsolescence, the collector is required to notify the consumer that the debt cannot be sued on but may be reported to a credit reporting agency. If it is past the date of obsolescence, the collector must inform the consumer that the debt cannot be sued on and will not be reported to a credit reporting agency.

This ensures that consumers are made fully aware of their rights when a debt collector is attempting to collect on a time-barred debt. The consumer is made aware of when a debt cannot be sued upon and whether such debt can be reported to a credit reporting agency.

This bill provides strong, commonsense protections for consumers.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 7/6/18)

Western Center on Law and Poverty (source)

Asian Law Alliance

California Low-Income Consumer Coalition

Congress of California Seniors

Consumer Federation of California

Consumers Union

Courage Campaign

East Bay Community Law Center

Health Access California

OPPOSITION: (Verified 7/6/18)

None received

ARGUMENTS IN SUPPORT: Writing in support, Consumers Union states: “Consumers struggle to defend themselves against old debts, even when there is no legal basis for the debt. A recent Consumer Financial Protection Bureau report found that the most common cause of consumer debt collection complaints was consumers’ assertion that the debt was not owed. Consumers often fall prey to aggressive collection tactics, wherein debt collectors will link new, enforceable debt to old debt that is no longer enforceable, or alternatively convince a consumer to make a small payment on old, unenforceable debt in order to reset the clock on the statute of limitations.

“California needs to actively protect consumers from being targeted and sued for the collection of debts too old to enforce. In 2011, Consumers Union released a report recommending this protection be incorporated into state law, as well as a host of additional protections that would safeguard consumers from aggressive debt collection practices.

“Although California has long had a 4-year statute of limitations on consumer debts, in order to benefit from the statute of limitations, a consumer must raise it as an affirmative defense to a lawsuit. Most consumers simply don’t know this, nor do they have the legal expertise to raise an affirmative defense on their own should they be sued for an old debt that they do not even owe.

“In order to protect consumers, AB 1526 would make the statute of limitations do what consumers think it does: stop actions on a debt once the statute of limitations has run.”

ASSEMBLY FLOOR: 75-0, 1/29/18

AYES: Acosta, Aguiar-Curry, Travis Allen, Arambula, Baker, Berman, Bigelow, Bloom, Bonta, Brough, Burke, Caballero, Calderon, Carrillo, Cervantes, Chau, Chávez, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Eggman, Flora, Fong, Frazier, Friedman, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Harper, Holden, Irwin, Jones-Sawyer, Kalra, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon

NO VOTE RECORDED: Gallagher, McCarty

Prepared by: Christian Kurpiewski / JUD. / (916) 651-4113

8/1/18 14:11:59

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2017-2018 Regular Session

Bill No: AB 1526 (Author:Kalra)

Version: June 27, 2018

Hearing Date: July 3, 2018

Fiscal: No

Urgency: No

Consultant: CK

SUBJECT

Debt collection

DESCRIPTION

This bill would require debt collectors to provide certain notices to consumers when attempting to collect on time-barred debts. It would also provide that the limitations period on commencing actions to collect on certain debts is an outright bar on initiating such proceedings, rather than allowing the expiration of the statute of limitations to serve simply as an affirmative defense.

BACKGROUND

Debt buyers are companies that purchase delinquent or charged-off debts from a creditor for a fraction of the face value of the debt. Several years ago, these companies became subject to increased scrutiny due to numerous complaints on behalf of consumers.

In response, SB 233 (Leno and Correa, Chapter 64, Statutes of 2013), sponsored by Attorney General Kamala Harris, established the Fair Debt Buying Practices Act. The Act made numerous changes relating to debt buyers, including prohibiting a debt buyer from making a written statement to collect a consumer debt without possessing specific information, requiring a complaint in an action to collect on a consumer debt to include specific allegations, and prohibiting a debt buyer from bringing suit if the applicable statute of limitations has expired.

This bill would apply similar limitations on debt collectors.

CHANGES TO EXISTING LAW

Existing law provides that a debt buyer shall not bring suit or initiate an arbitration or other legal proceeding to collect a consumer debt if the applicable statute of limitations on the debt buyer’s claim has expired. (Civ. Code Sec. 1788.56.)

Existing law provides that no debt collector shall collect or attempt to collect a consumer debt by means of the following practices:

• obtaining an affirmation from a debtor of a consumer debt which has been discharged in bankruptcy, without clearly and conspicuously disclosing to the debtor, in writing, at the time such affirmation is sought, the fact that the debtor is not legally obligated to make such affirmation;
• collecting or attempting to collect from the debtor the whole or any part of the debt collector’s fee or charge for services rendered, or other expense incurred by the debt collector in the collection of the consumer debt, except as permitted by law; or
• initiating communications, other than statements of account, with the debtor with regard to the consumer debt, when the debt collector has been previously notified in writing by the debtor’s attorney that the debtor is represented by such attorney with respect to the consumer debt and such notice includes the attorney’s name and address and a request by such attorney that all communications regarding the consumer debt be addressed to such attorney, unless the attorney fails to answer correspondence, return telephone calls, or discuss the obligation in question, unless prior approval has been obtained from the debtor’s attorney, or the communication is a response in the ordinary course of business to a debtor’s inquiry. (Civ. Code Sec. 1788.14.)

Existing law provides that a party must commence the following actions within four years:

• an action upon any contract, obligation or liability founded upon an instrument in writing, except as provided in Section 336a of the Civil Code; provided, that the time within which any action for a money judgment for the balance due upon an obligation for the payment of which a deed of trust or mortgage with power of sale upon real property or any interest therein was given as security, following the exercise of the power of sale in such deed of trust or mortgage, may be brought shall not extend beyond three months after the time of sale under such deed of trust or mortgage;
• an action to recover (1) upon a book account whether consisting of one or more entries; (2) upon an account stated based upon an account in writing, but the acknowledgment of the account stated need not be in writing; (3) a balance due upon a mutual, open and current account, the items of which are in writing; provided, however, that where an account stated is based upon an account of one item, the time shall begin to run from the date of said item, and where an account stated is based upon an account of more than one item, the time shall begin to run from the date of the last item; and
• an action based upon the rescission of a contract in writing. The time begins to run from the date upon which the facts that entitle the aggrieved party to rescind occurred. Where the ground for rescission is fraud or mistake, the time does not begin to run until the discovery by the aggrieved party of the facts constituting the fraud or mistake. Where the ground for rescission is misrepresentation under Section 359 of the Insurance Code, the time does not begin to run until the representation becomes false. (Code Civ. Proc. Sec. 337.)

Existing law defines “debt collector” as any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection. The term includes any person who composes and sells, or offers to compose and sell, forms, letters, and other collection media used or intended to be used for debt collection, but does not include an attorney or counselor at law. (Civ. Code Sec. 1788.2.)

This bill would provide that a debt collector shall not collect or attempt to collect a consumer debt by sending a written communication to a debtor in an attempt to collect a time-barred debt without providing the debtor with one of the following written notices:

• if the debt is not past the date for obsolescence set forth in Section 605(a) of the federal Fair Credit Reporting Act (15 U.S.C. Sec. 1681c), the following notice shall be included in the first written communication provided to the debtor after the debt has become time-barred:

“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 collector] 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 past the date for obsolescence set forth in Section 605(a) of the federal Fair Credit Reporting Act (15 U.S.C. Sec. 1681c), the following notice shall be included in the first written communication provided to the debtor after the date for obsolescence:

“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.”

This bill would define “first written communication” to mean the first communication sent to the debtor in writing or by facsimile, email, or other similar means.

This bill would provide that when the period in which an action must be commenced under Section 337 of the Code of Civil Procedure has run, a person shall not bring suit or initiate an arbitration or other legal proceeding to collect the debt. The period in which an action may be commenced under this section shall only be extended pursuant to Section 360 of the Code of Civil Procedure.

COMMENT

1. Stated need for the bill

The Western Center on Law and Poverty writes:

Currently, California consumers must know how to raise the statute of limitations as an affirmative defense when being sued on a time-barred debt, unless the person filing suit also happens to be a debt buyer. In 2013, California passed the Fair Debt Buying Practices Act, SB 233 (Leno), which put new rules on debt buyers, including, among other things, an outright preclusion on the filing of lawsuits after the statute of limitations has run. However, this law did not apply to debt collectors and original creditors. AB 1526 closes this loophole and makes the statute of limitations do what most people think it already does – stop a consumer from being sued once the debt is too old to enforce.

2. Protecting consumers from certain debt collection practices

This Committee’s analysis of SB 233 (Leno and Correa, Chapter 64, Statutes of 2013) indicated that a large percentage of debt collection actions were resulting in default judgments. The analysis pointed to an FTC report that collectors were regularly suing consumers on time-barred debts. The analysis pointed out that “[w]hen those consumers fail to respond, there is no advocate to raise, on their behalf, applicable defenses or challenge the assertions made by the debt buyer.” Therefore, even where these consumers would have a successful affirmative defense based on the statute of limitations, they were failing to appear or to assert the defense. Therefore, courts were granting default judgments on time-barred debts.

To address these issues, SB 233 prohibited a debt buyer from bringing suit or initiating an arbitration or other legal proceeding to collect a consumer debt if the applicable statute of limitations has expired, and required a debt buyer to notify a debtor if a debt is time-barred.

This bill would apply similar provisions to debt collectors. It would include a provision in Section 337 of the Code of Civil Procedure, which governs the statute of limitations for liability on various debts, that prohibits an action from being brought once the applicable four-year limitations period has run, unless otherwise agreed to by the parties. This would essentially make the statute of limitations defense on such claims self-executing, ensuring that consumers are not being held liable on stale claims.

This bill would also provide that a debt collector shall not collect or attempt to collect a consumer debt by sending a written communication to a debtor in an attempt to collect a time-barred debt without providing certain written notices. If such debts are not past the date of obsolescence, the collector is required to notify the consumer that the debt cannot be sued on but may be reported to a credit reporting agency. If it is past the date of obsolescence, the collector must inform the consumer that the debt cannot be sued on and will not be reported to a credit reporting agency.

This would ensure that consumers are made fully aware of their rights when a debt collector is attempting to collect on a time-barred debt. The consumer would be made aware of when a debt cannot be sued upon and whether such debt can be reported to a credit reporting agency.

This bill would provide strong, commonsense protections for consumers.

3. Support

The Consumer Federation of California writes in support:

Consumers cannot defend themselves against old debt without legal assistance, even if there is no basis for the debt. Often, a consumer only learns about an old debt when they need to use their credit score to rent housing or apply for a student loan. In some cases, even when the consumer did use services several years prior that caused a debt, the consumer no longer has the relevant records and is unable to dispute individual items or the overall balance. Other times, creditors and collection agencies will link a new debt to a debt that is no longer enforceable or else convince an unsuspecting consumer to make a small payment in order to reset the clock on the statute of limitations.

Statutes of limitations exist to ensure that creditors, collection agencies, and debt buyers do not “sit on their rights” to the disadvantage of the debtor. Unfortunately, there are not enough lawyers to represent low-income debtors and assert the statute of limitations, which makes this bill necessary.

AB 1526 would make sure that debt collectors seeking a payment after the four-year statute of limitations has passed inform the debtor that the debt is no longer enforceable through a lawsuit. The bill does not change creditors’ ability to enforce debts prior to that time.

Writing in support, Consumers Union states:

Consumers struggle to defend themselves against old debts, even when there is no legal basis for the debt. A recent Consumer Financial Protection Bureau report found that the most common cause of consumer debt collection complaints was consumers’ assertion that the debt was not owed. Consumers often fall prey to aggressive collection tactics, wherein debt collectors will link new, enforceable debt to old debt that is no longer enforceable, or alternatively convince a consumer to make a small payment on old, unenforceable debt in order to reset the clock on the statute of limitations.

California needs to actively protect consumers from being targeted and sued for the collection of debts too old to enforce. In 2011, Consumers Union released a report recommending this protection be incorporated into state law, as well as a host of additional protections that would safeguard consumers from aggressive debt collection practices.

Although California has long had a 4-year statute of limitations on consumer debts, in order to benefit from the statute of limitations, a consumer must raise it as an affirmative defense to a lawsuit. Most consumers simply don’t know this, nor do they have the legal expertise to raise an affirmative defense on their own should they be sued for an old debt that they do not even owe.

In order to protect consumers, AB 1526 would make the statute of limitations do what consumers think it does: stop actions on a debt once the statute of limitations has run.

Support: Asian Law Alliance; California Low-Income Consumer Coalition; Congress of California Seniors; Consumer Federation of California; Consumers Union; Courage Campaign; East Bay Community Law Center; Health Access California

Opposition: None Known

HISTORY

Source: Western Center on Law and Poverty

Related Pending Legislation: AB 2825 (Jones-Sawyer, 2018) would generally apply the protections of the Rosenthal Fair Debt Collections Practices Act and the Fair Debt Buying Practices Act to the collection of certain government debts and debts arising from the towing, impounding, and storing of vehicles. This bill is currently in the Senate Appropriations Committee.

Prior Legislation: SB 233 (Leno and Correa, Ch. 64, Stats. 2013) See Background.

Prior Vote:

Assembly Floor (Ayes 75, Noes 0)

Assembly Judiciary Committee (Ayes 10, Noes 0)

Assembly Banking and Finance Committee (Ayes 11, Noes 0)

**************

Date of Hearing: January 17, 2018

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

ABPCA Bill Id:AB 1526

Author:(Kalra) – As Amended Ver:January 3, 2018

PROPOSED CONSENT

SUBJECT: Civil actions: time of commencing

KEY ISSUES:

1. SHOULD THERE BE A PROHIBITION AGAINST BRINGING LEGAL ACTION TO RECOVER A DEBT FROM A CONSUMER AFTER THE STATUTE OF LIMITATIONS HAS EXPIRED ON THAT ACTION?
2. SHOULD THERE BE A PROHIBITION AGAINST RENEWING THE STATUTE OF LIMITATIONS ON AN ACTION TO RECOVER A TIME-BARRED DEBT FROM A CONSUMER, EVEN IF THE CONSUMER HAS MADE A PAYMENT ON THE DEBT AFTER IT BECOMES TIME-BARRED?
3. should debt collectors be subject to the same requirements AS debt buyers WITH REGARDS TO PROVIDING Consumers WITH NOTICE OF THEIR RIGHTS UPON ATTEMPTING TO COLLECT TIME-BARRED DEBTS?

SYNOPSIS

Existing state laws, including the Fair Debt Buying Practices Act and the Rosenthal Fair Debt Collection Practices Act, regulate debt collection practices and provide consumer protections to debtors by restricting the manner in which debts may be collected on and the time-frame during which legal action can be brought to recover debts. However, while the four-year statute of limitations (SOL) exists to ensure that creditors, debt collectors, and debt buyers do not “sit on their rights” to the disadvantage of the consumers, only debt buyers are currently prohibited from bringing legal action after the SOL has passed. According to the author, “California has a four-year SOL on unpaid debt. This section of law has not been amended in over 55 years despite changes in the collection and debt buying industries. AB 1526 prohibits legal action from being taken on a consumer debt when California’s four-year statute of limitations (SOL) has run its course, prohibits the renewal of the SOL if a payment on the debt occurs after the SOL expires, and provides additional consumer information on how debt may be pursued by the original creditor.”

Moreover, while this bill does not alter the rights of debt collectors to recover consumer debts before the SOL has passed, it requires that notice about one’s rights is given to consumers when attempts are made to collect on time-barred debts. AB 1526 would also prevent the SOL from being renewed in cases where consumers make a payment on a debt after it has become time-barred.

This bill is supported by a number of legal aid and community health organizations, which submitted accounts of clients being sued for debts on which the statute of limitations has passed. Additionally, in response to concerns brought forth by representatives from the debt collection, financial, and hospital industry representatives, the author previously made a number of amendments to the bill. For example, in response to concerned raised by the California Association of Collectors (CAC) about a prior version of the bill which would have extinguished consumer debt after four years, the author has removed that provision. Furthermore, the bill no longer addresses the question of book accounts. As a result of these recent amendments, the bill no longer has any opposition on file.

This bill was previously heard and approved by the Assembly Banking and Finance Committee, which passed the bill by a vote of 11-0.

SUMMARY: Provides additional rights and information to consumers regarding the attempted collection of time-barred debts. Specifically, this bill:

1. Requires debt collectors to give the following written notices to debtors when attempting to collect on a time-barred debt:
   1. “The law limits how long you can be sued on a debt. Because of the age of your debt, [we or creditor or debt collector name] will not sue you for it.”
   2. In addition, for debts which are not past the date of obsolescence, the notice will read: “…However, if you do not pay the debt, [creditor or debt collector name] may [continue to] report it to the credit reporting agencies as unpaid for as long as the law permits this reporting.”
   3. In addition, for debts which are past the date of obsolescence, the notice will read: “…and will not report it to any credit reporting agency.”
2. Prohibits legal action on time-barred debts after the statute of limitations has passed, except as provided under Section 336a of the Code of Civil Procedure.
3. Prohibits the renewal of the statute of limitations on consumer time-barred debts in cases where the statute of limitations has passed and a debtor makes a payment on the debt.

EXISTING LAW:

1. Regulates the practice of debt collection and the conduct of debt collectors under the Rosenthal Fair Debt Collection Practices Act by prohibiting deceptive, dishonest, unfair, and unreasonable practices. (Title 1.6C of Part 4 of Division 3 of the Civil Code, commencing with Section 1788. All further statutory references are to this code, unless otherwise indicated.)
2. Requires that debt buyers provide written notice when trying to collect on time-barred debts. (Sections 1788.52(d)(2) and 1788.52(d)(3).)
3. Specifies, pursuant to the federal Fair Credit Reporting Act, that a debt is considered past the date of obsolescence after seven years. (15 U.S.C. Sec. 1681c.)
4. Provides that an action upon any contract, obligation, or liability upon an instrument in writing, or to recover upon a book account whether consisting of one or more entries, shall be commenced within four years. (Code of Civil Procedure Section 337.)

FISCAL EFFECT: As currently in print this bill is keyed non-fiscal.

COMMENTS: According to the author:

California has long been a leader in consumer protection; this includes having established one of the country’s oldest laws providing a four-year SOL on the ability of debt collectors to sue to collect on debt, yet, more is needed to protect consumers from aggressive debt collecting practices. Because the existing four-year SOL does not extinguish the underlying debt, it allows unsuspecting and unaware consumers to pay a debt that is no longer legally enforceable.

Even though a debt is no longer legally enforceable after the expiration of the SOL, debt collectors will often use creative ways to compel consumers to make a payment, no matter how small, on the debt.

In California, this means that the SOL begins to run from the date that the last payment on the debt was made, rendering the debt no longer legally enforceable after four years. However, because California law allows debt to remain reportable for seven years, it can be reported on a consumer’s credit report for an additional three years even though it is no longer legally enforceable to collect. Further, the law is silent on how long a debtor may hold the debt, regardless of whether the debt is written off or sold to a debt collector.

Background on Consumer Debt and Debt Collection. A 2017 survey by the National Foundation for Credit Counseling found that 39% of Americans carry credit card debt over from month to month, while more than one in five people report not paying their bills on time. (NFCC, 2017 Consumer Financial Literacy Survey, found at https://www.nfcc.org/clientimpact/2017-financial-literacy-survey/.) In terms of the types of debt that individuals are contacted about for collection, a 2017 report from the Consumer Financial Protection Bureau (CFPB) found the most common were medical services (59% of those contacted for debt collection), telecommunications (37%), and utilities bills (28%). (CFPB, Consumer Experiences with Debt Collection, 2017, found at https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/201701_cfpb_Debt-Collection-Survey-Report.pdf.)

It is also common for debts to be erroneously reported on a consumer’s credit report, with a Federal Trade Commission (FTC) report finding that a quarter of consumers had a mistake on their credit report. (FTC, 2012, found at https://www.ftc.gov/sites/default/files/documents/reports/section-319-fair-and-accurate-credit-transactions-act-2003-fifth-interim-federal-trade-commission/130211factareport.pdf.)

Moreover, for those consumers who end up facing legal action due to debt, few are likely to know their rights given that studies indicate only about 2% of debtors are represented by attorneys. (National Consumer Law Center, Model Statute of Limitations Reform Act, 2015 http://www.nclc.org/images/pdf/debt_collection/statute-of-limitations-reform-act.pdf.) While existing state laws on time-barred debts shield consumers from legal action after four years, the current system puts the responsibility of knowing this on the consumer. Additionally, under current California law, the statute of limitations can be renewed if a debtor makes a payment on her or his debt after the statute of limitations has passed. (Code of Civil Procedure Section 337.)

Background on Statutes of Limitations (Section 337 of the Code of Civil Procedure). Statutes of limitations specify how long a party has to bring legal action and "are designed to promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared. The theory is that even if one has a just claim it is unjust not to put the adversary on notice to defend within the period of limitation and the right to be free of stale claims in time comes to prevail over the right to prosecute them." (3 Witkin, Cal. Procedure (5^th ed. 2008) Meritorious or Favored Defense § 433, p. 551.)

For consumer debts in California, the statute of limitations for bringing legal action based upon that debt is four years. Having a statute of limitations ensures that creditors, debt collectors, and debt buyers do not “sit on their rights” to the disadvantage of the consumers.

Background on the Fair Debt Buying Practice Act. In 2013, the Legislature enacted SB 233 (Leno, Ch. 64, Stats. 2013), the Fair Debt Buying Practices Act (FDBPA), to regulate the activities of entities that purchase “charged-off consumer debt.” The FDBPA requires that debt buyers provide consumers with information about their rights and sets standards for bringing legal action to recover debts.

For example, the FDBPA provides that a debt buyer shall not bring legal action on a consumer debt if the statute of limitations on the debt buyer’s claim has expired. Additionally, it requires that debt buyers make information pertaining to the debt available to consumers, including information on the debt balance, the date of default, the name and address of the creditor, and the name and address of the debtor. While the FDBPA protects consumers by regulating debt buyers, these requirements do not extend to debt collectors or creditors.

Background on the Rosenthal Fair Debt Collection Practices Act (Section 1788). The Rosenthal Fair Debt Collection Practices Act regulates the practice of debt collection and the conduct of debt collectors in the State of California. It provides consumer protections by regulating the form and content of communications of debt collectors with debtors when they attempt to recover debts. In order to prevent predatory or coercive debt collection activities, the law prohibits the use of practices that are deceptive, dishonest, unfair, and unreasonable. For example, the Rosenthal Fair Debt Collection Practices Act prohibits debt collectors from making false claims to consumers about their debt, such as implying that non-payment will result in arrest or that failure to pay one’s debts could lead to the accusation that one has committed a crime.

Issues that the Author and Sponsor Will Consider as the Bill Moves Forward. As currently in print, this bill requires written notice to be provided to consumers when collecting on time-barred debts. The bill in print also does not specify guidelines on the size or language of the written notice, though such guidelines may provide further assurance that consumers will see and understand the notice. As such, to ensure consumers are aware of their rights, it may be prudent to specify a minimum font size and language of the written notice given to consumers at the time of debt collection.

For example, in the Fair Debt Buying Practices Act, a minimum font size of 12 point is specified to notify consumers of their rights to request information on their debt. “A debt buyer shall include with its first written communication with the debtor in no smaller than 12-point type, a separate prominent notice… .” (Section 1788.52(d)(1).)

Moreover, giving notice in a non-English language notice in cases where the original agreement between creditor and debtor was in a non-English language may help ensure comprehension for those with low or no fluency in English. Existing law imposes this requirement for collection of oral contracts in Section 1788.52(e), which states: “If a language other than English is principally used by the debt buyer in the initial oral contact with the debtor, the notice required by subdivision (d) shall be provided to the debtor in that language within five working days.”

In terms of which non-English languages should be required, Section 1632, pertaining to contracts, specifies the circumstances in which contracts should be translated and identifies the five most commonly used non-English languages in California as: Spanish, Chinese, Vietnamese, Tagalog, Korean.

While the bill as currently in print does not specify font size or non-English language provisions, the author indicates that he is interested in investigating the feasibility of adding these provisions when the bill reaches the Senate.

Arguments in Support: Supporters of AB 1526 note that current law does not adequately protect consumers from the practices of debt collectors. For example, they contend that consumers cannot defend themselves against old debt without legal assistance. When consumers are sued for time-barred debts, they must know to assert the statute of limitations under current law, and that places consumers without legal representation at a disadvantage.

The Consumers Union notes that defending against debt collection efforts requires legal representation and can cause consumers significant distress and hardship. Additionally, proponents cite the lack of availability of lawyers to represent low-income debtors as a reason that the bill is needed.

Furthermore, supporters contend that this bill would benefit consumers by informing them of their rights and preventing legal action from being taken after the statute of limitations has expired. Supporters note that the bill would not alter the ability of debt collectors to collect on the debt before the statute of limitations expires.

REGISTERED SUPPORT / OPPOSITION:

Support

Western Center on Law and Poverty (WCLP) (sponsor)

Asian Law Alliance

California Low-Income Consumer Coalition

California Reinvestment Coalition

California Pan-Ethnic Health Network (CPEHN)

Consumer Federation of California

Consumers Union

Courage Campaign

East Bay Community Law Center

Health Access California

Public Counsel

Public Law Center

Opposition

None on fine

Analysis Prepared by: Sandra Nakagawa and Anthony Lew / JUD. / (916) 319-2334

Date of Hearing: January 8, 2018

ASSEMBLY COMMITTEE ON BANKING AND FINANCE

Monique Limon, Chair

ABPCA Bill Id:AB 1526 (

Author:Kalra) – As Amended Ver:January 3, 2018

SUBJECT: Civil actions: time of commencing

SUMMARY: This bill would specify that when the four-year period in which a debt collection action must be commenced has run, no person may bring suit or initiate arbitration or other legal proceeding to collect the debt. Specifically, this bill:

1. Aligns Section 1788.14 of the Civil Code with the CA Fair Debt Buying Practices Act, specifically Section 1788.52, which would require a debt collector to provide a debtor with notice on collection of a time-barred debt.
2. Prohibits a creditor/debt collector from threatening or pursuing legal action against a debtor if the debt is time-barred.
3. Prohibits the renewal of the statute of limitations on debt if payment on the debt is made after it is time-barred, unless both the creditor and debtor agree pursuant to Section 360 of the Code of Civil Procedure.

EXISTING LAW: Establishes the Fair Debt Buying Practices Act (FDBPA) which regulates the activities of a person or entity that has bought charged-off consumer loans for collection purposes. The FDBPA is limited to debt buyers with respect to all consumer debt sold or resold on or after January 1, 2014. (Civil Code Section 1788.50 et seq.)

1. Provides that a debt buyer shall 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.
2. Requires that in an action brought by a debt buyer on consumer debt, certain facts must be alleged in the complaint, including, among others:
   1. The date of default or the date of the last payment;
   2. 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 charge-off creditor's name and address shall be in sufficient form so as to reasonably identify the charge-off creditor;
   3. 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. If the debt was sold prior to January 1, 2014, the debtor's name and last known address as they appeared in the debt owner's records on December 31, 2013, shall be sufficient; and,
   4. The names and addresses of all persons or entities that purchased the debt after charge off, including the plaintiff debt buyer. The names and addresses shall be in sufficient form so as to reasonably identify each such purchaser.
3. Provides that in an action initiated by a debt buyer, no default or other judgment may be entered against a debtor unless business records, authenticated through a sworn declaration, are submitted by the debt buyer to the court to establish the specific facts required to be alleged, above. Existing law further provides that no default or other judgment may be entered against a debtor unless a copy of the contract or other document described, as specified, authenticated through a sworn declaration, has been submitted by the debt buyer to the court.
4. Provides that in any action on a consumer debt, if a debt buyer plaintiff seeks a default judgment and has not complied with the requirements of the FDBPA, the court shall not enter a default judgment for the plaintiff and may, in its discretion, dismiss the action.
5. Provides that, except as provided in the FDBPA, the above default judgment provisions are not intended to modify or otherwise amend existing procedures established under Code of Civil Procedure Section 585 (which provides a procedure for judgment to be had if a defendant fails to answer or otherwise respond to a complaint).
6. Provides that when service of a summons has not resulted in actual notice to a party in time to defend the action and a default or default judgment has been entered against him or her in the action, he or she may serve and file a notice of motion to set aside the default or default judgment and for leave to defend the action. Existing law requires that the notice of motion be served and filed within a reasonable time, but in no event exceeding the earlier of: a) two years after entry of a default judgment against him or her; or b) 180 days after service on him or her of a written notice that the default or default judgment has been entered. (Code of Civil Procedure Section 473.5 et. seq.)
7. Requires that a notice of motion to set aside a default or default judgment and for leave to defend the action designate as the time for making the motion a date prescribed under a specified provision (which sets forth the statutory timelines for filing and serving specified noticed motions, opposing papers, and reply papers), and that the notice be accompanied by an affidavit showing under oath that the party's lack of actual notice in time to defend the action was not caused by his or her avoidance of service or inexcusable neglect. The party shall serve and file with the notice a copy of the answer, motion, or other pleading proposed to be filed in the action.
8. Provides that upon a finding by the court that the motion was made within the period permitted by subdivision 3)a) above, and that his or her lack of actual notice in time to defend the action was not caused by his or her avoidance of service or inexcusable neglect, it may set aside the default or default judgment on whatever terms as may be just and allow the party to defend the action.

EXISTING FEDERAL LAW: Regulates the collection of debt through, among other things, the Fair Debt Collection Practices Act; Fair Credit Reporting Act; and the Gramm-Leach-Bliley Act.

FISCAL EFFECT: Unknown

COMMENTS: Substantial amendments to the bill have led to all opposition being removed.

According to the author:

California has long been a leader in consumer protection; this includes having established one of the country’s oldest laws providing a four-year statute of limitations on the ability of debt collectors to sue to collect on debt, yet, more is needed to protect consumers from aggressive debt collecting practices. Because the existing four-year statute of limitations does not extinguish the underlying debt, it allows unsuspecting and unaware consumers to pay a debt that is no longer legally enforceable.  

While not infringing upon the rights of creditors to enforce debts prior to the end of the statute of limitation period, AB 1526 would:

• Provide that no person may sue or bring legal action against a consumer for a debt that is beyond the four-year statute of limitation.
• Provide that the statute of limitation may not be extended unless as otherwise allowed under Section 360 of the Code of Civil Procedure.
• Require debt collectors or the original creditor who chooses to pursue the debt, and does not sell it off, to provide consumer information about what time-barred debt is and whether they may or may not be sued because of the nonpayment of the debt, similar to what is already required under the Fair Debt Buying Practices Act.

Concerns have been raised that even after the four-year statute of limitations has run for a particular debt, debt collectors will use “creative” methods to revive an expired debt. This can lead to debt collectors taking legal action against a consumer on a debt that is no longer legally enforceable. Consumers may be unaware of this action and their legal rights under the law.

This bill seeks to protect consumers by ensuring they are appropriately informed of a debt collection action and that no time barred account may be litigated beyond the 4-year statute of limitations.

The Western Center on Law and Poverty, the sponsors of the bill, note that Alaska, the District of Columbia, Maryland, Mississippi, New Hampshire, North Carolina, and South Carolina all have three-year statute of limitations, while Wisconsin and Mississippi extinguish time barred debt at four years

REGISTERED SUPPORT / OPPOSITION:

SUPPORT:  

Asian Law Alliance (prior version)
California Low-Income Consumer Coalition (prior version)
California Pan - Ethnic Health Network (prior version)
Consumer Federation of California (prior version)
Consumers Union (updated 1/4/18)
Courage Campaign (updated 1/4/18)
East Bay Community Law Center (prior version)
Health Access California (updated 1/4/18)
Public Law Center (updated 1/4/18)

OPPOSE: 

All previous opposition has contacted the committee and removed their opposition.

Analysis Prepared by: William Herms / B. & F. / (916) 319-3081

Date of Hearing: May 1, 2017

ASSEMBLY COMMITTEE ON BANKING AND FINANCE

Matthew Dababneh, Chair

ABPCA Bill Id:AB 1526 (

Author:Kalra) – As Amended Ver:April 25, 2017

SUBJECT: Civil actions: time of commencing

SUMMARY: Clarifies that a consumer’s payment on an outstanding debt does not revive the statute of limitations and changes requirements dealing with book accounts and accounts stated, as specified. Specifically, this bill:

1. Prohibits a debt collector from attempting to collect on a time-barred debt without providing the debtor through written notices, as specified.
2. Requires that for an action to recover a book account or account stated for an account of one or more items, the time shall run separately for each transaction.

EXISTING LAW: Establishes the Fair Debt Buying Practices Act (FDBPA) which regulates the activities of a person or entity that has bought charged-off consumer loans for collection purposes. The FDBPA is limited to debt buyers with respect to all consumer debt sold or resold on or after January 1, 2014. (Civil Code Section 1788.50 et seq.)

1. Provides that a debt buyer shall not bring suit or initiate an arbitration or other legal proceeding to collect a consumer debt if the applicable statute of limitations on the debt buyer's claim has expired.
2. Requires that in an action brought by a debt buyer on consumer debt, certain facts must be alleged in the complaint, including, among others:
   1. The date of default or the date of the last payment;
   2. 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 charge-off creditor's name and address shall be in sufficient form so as to reasonably identify the charge-off creditor;
   3. 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. If the debt was sold prior to January 1, 2014, the debtor's name and last known address as they appeared in the debt owner's records on December 31, 2013, shall be sufficient; and,
   4. The names and addresses of all persons or entities that purchased the debt after charge off, including the plaintiff debt buyer. The names and addresses shall be in sufficient form so as to reasonably identify each such purchaser.
3. Provides that in an action initiated by a debt buyer, no default or other judgment may be entered against a debtor unless business records, authenticated through a sworn declaration, are submitted by the debt buyer to the court to establish the specific facts required to be alleged, above. Existing law further provides that no default or other judgment may be entered against a debtor unless a copy of the contract or other document described, as specified, authenticated through a sworn declaration, has been submitted by the debt buyer to the court.
4. Provides that in any action on a consumer debt, if a debt buyer plaintiff seeks a default judgment and has not complied with the requirements of the FDBPA, the court shall not enter a default judgment for the plaintiff and may, in its discretion, dismiss the action.
5. Provides that, except as provided in the FDBPA, the above default judgment provisions are not intended to modify or otherwise amend existing procedures established under Code of Civil Procedure Section 585 (which provides a procedure for judgment to be had if a defendant fails to answer or otherwise respond to a complaint).
6. Provides that when service of a summons has not resulted in actual notice to a party in time to defend the action and a default or default judgment has been entered against him or her in the action, he or she may serve and file a notice of motion to set aside the default or default judgment and for leave to defend the action. Existing law requires that the notice of motion be served and filed within a reasonable time, but in no event exceeding the earlier of: a) two years after entry of a default judgment against him or her; or b) 180 days after service on him or her of a written notice that the default or default judgment has been entered. (Code of Civil Procedure Section 473.5 et. seq.)
7. Requires that a notice of motion to set aside a default or default judgment and for leave to defend the action designate as the time for making the motion a date prescribed under a specified provision (which sets forth the statutory timelines for filing and serving specified noticed motions, opposing papers, and reply papers), and that the notice be accompanied by an affidavit showing under oath that the party's lack of actual notice in time to defend the action was not caused by his or her avoidance of service or inexcusable neglect. The party shall serve and file with the notice a copy of the answer, motion, or other pleading proposed to be filed in the action.
8. Provides that upon a finding by the court that the motion was made within the period permitted by subdivision 3)a) above, and that his or her lack of actual notice in time to defend the action was not caused by his or her avoidance of service or inexcusable neglect, it may set aside the default or default judgment on whatever terms as may be just and allow the party to defend the action.

EXISTING FEDERAL LAW: Regulates the collection of debt through, among other things, the Fair Debt Collection Practices Act; Fair Credit Reporting Act; and the Gramm-Leach-Bliley Act.

FISCAL EFFECT: Unknown

COMMENTS: This bill makes changes to provisions of consumer outstanding debt, how the statute of limitations (SOL) affects that debt, and applicable reporting requirements. According to the author’s office:

Even though a debt is no longer legally enforceable after the expiration of the SOL, debt collectors will often use creative ways to compel consumers to make a payment, no matter how small, on the debt. Some creditors and collectors combine later received services or credit with an old debt to revive a time-barred debt by combining the two into one account. Even though the debt is no longer legally enforceable, debt collectors can still take legal action against unsuspecting consumers. This often happens to consumers unaware of their legal rights afforded under SOL laws, especially those who are unable to afford legal representation.

SB 233 (Leno), Chapter 64, Statutes of 2013, establishes the Fair Debt Buying Practices Act to regulate the activities of a person or entity (debt buyer) that has bought charged-off consumer debt for collection purposes. Unlike debt buyers, debt collectors typically are contracted by debt originators to collect outstanding debt for the originator. SB 233 was enacted as a result of significant stakeholder participation and negotiation. The provisions in this bill that mirror the language in the FDBPA seek to extend the same requirements currently on debt buyers and apply it to debt collectors. Generally, debt held by debt buyers is older than that held by debt collectors as it has already been sold off by the debt originator. It is not clear the extent of the problem that this use of the FDBPA language is meant to address.

Recent amendments to the bill change language relating to when an action can be taken within the Code of Civil Procedure. Current language states that within four years an action to recover a stated account shall begin to run from the date of the last item. This bill alters that requirement to “the time shall run separately for each transaction.” Unfortunately, this language introduces ambiguity into the timing of when an action could be taken.

Contributing to the uncertainty noted above is the inclusion of “book accounts” alongside “stated accounts” within this provision. Book accounts can be understood as an account that a business like a dentist, a pool maintenance company, or a hospital maintains across several transactions with a consumer. Requiring the timing for an action to recover for a book account to run separately for each transaction places a significant burden on the originating business.

Committee staff recommendation: This analysis looks at the bill with its most recent amendments. These recent amendments removed several contentious provisions of the bill but also inserted language that added ambiguity and increased opposition. Given that, it seems prudent that the author make this a two-year bill using the additional time to gather all stakeholders and work towards a more amicable solution built upon some level of concensus.

REGISTERED SUPPORT / OPPOSITION:

SUPPORT:  

Asian Law Alliance
California Low-Income Consumer Coalition 
California Pan - Ethnic Health Network
Consumer Federation of California
Consumers Union 
Courage Campaign
East Bay Community Law Center
Health Access California
Public Law Center

OPPOSE:  

California Association of Collectors, Inc.
California Bankers Association
California Community Banking Network
California Credit Union League
California Hospital Association
Cavalry
PRA Group
Receivables Management Association International
USCB America Inc.

Analysis Prepared by: William Herms / B. & F. / (916) 319-3081