SENATE THIRD READING

STR Bill Id:SB 187

Author:(Wieckowski)

As Amended Ver:April 22, 2019

Majority vote

SUMMARY:

Clarifies that the definition of "consumer debt" in the Rosenthal Fair Debt Collections Practices Act (RFDCPA) includes mortgage debt. Removes the exception for attorneys in the definition of "debt collector."

Major Provisions

1. Clarifies, for purposes of the RFDCPA, that "consumer debt" includes a mortgage debt. It makes clear that the intent of the Legislature in so amending this definition is to clarify existing law.
2. Removes the exception for attorneys and counselors at law from the definition of "debt collector."

COMMENTS:

BACKGROUND

The Rosenthal Fair Debt Collection Practices Act (RFDCPA) defines consumer debt as "money, property or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction." The definitions do not specifically include the words "mortgage debt" which has led some courts to rule that mortgage debt is not covered by the Rosenthal Act.

Secondly, there have been multiple reported cases from organizations such as East Bay Community Law Center of solo practicing attorneys, landlord attorneys, and law firms that have harassed individuals for payment. Consumers should be protected from harassment regardless whether it is perpetrated by an attorney debt collector or a non-attorney debt collector.

COMMON SENSE PROTECTIONS

This bill would ensure that courts do not mistakenly exempt consumers who owe mortgage debt from commonsense protections, including prohibiting debt collectors from engaging in unscrupulous activities such as the use of violence or profanity, defamation, and the false representation of an attorney. To be clear, this bill does not affect the enforceability of amounts owed by a consumer on a mortgage debt – the consumer is still responsible for paying the amount owed. The bill also ensures that consumers are protected from harassment regardless whether it is perpetrated by an attorney debt collector or a non-attorney debt collector.

According to the Author:

My bill, SB 187, would ensure that people with mortgage debt are given the exact same type of protections and rights as people who have any other type of debt. It is unfortunate that courts have had conflicting rulings on whether or not the definition of "consumer debt" under the California Fair Debt Collection Practices Act includes mortgage debt. Without those protections debt collectors can contact people multiple times a day at any hour and even threaten to foreclose homes despite payments being paid on time. The Act was established by legislators with the purpose to ensure all consumers are protected from harassment and abusive debt collection. My bill makes it clear in statue that people with mortgage debt will be given the same protections and will be treated fairly. In addition, SB 187 removes the exception that an attorney is not subject to the enforcement provisions of the Rosenthal Act. There have been multiple reports from law organizations who have seen banks or debt collectors use law firms or attorneys to circumvent the protections given to people by the Act. People should be protected from abusive debt collection tactics regardless whether it is done by an attorney debt collector or a non-attorney debt collector.

Arguments in Support:

In a context of harassment and abusive debt collection tactics, there is an immediate need to clarify existing law in regard to mortgage debt to make sure that debt collectors seeking to collect on mortgage debt fall within the purview of the Fair Debt Collection Practices Act. By merely clarifying that mortgage debt is within the definition of "consumer debt," SB 187 proposes to simply codify existing California law, see Davidson v. Seterus, 21 Cal.App.5th 283 (2018)  

Arguments in Opposition:

None received

FISCAL COMMENTS:

None. This bill is keyed nonfiscal by the Legislative Counsel.

VOTES:

SENATE FLOOR: 38-0-0

YES: Allen, Archuleta, Atkins, Bates, Beall, Borgeas, Bradford, Caballero, Chang, Dodd, Durazo, Galgiani, Glazer, Grove, Hertzberg, Hill, Hueso, Hurtado, Jackson, Jones, Leyva, McGuire, Mitchell, Monning, Moorlach, Morrell, Nielsen, Pan, Portantino, Roth, Rubio, Skinner, Stern, Stone, Umberg, Wieckowski, Wiener, Wilk

ASM BANKING AND FINANCE: 12-0-0

YES: Limón, Chen, Bauer-Kahan, Burke, Cervantes, Choi, Gabriel, Grayson, Melendez, Mark Stone, Weber, Wicks

ASM JUDICIARY: 12-0-0

YES: Mark Stone, Gallagher, Chau, Chiu, Gonzalez, Holden, Kalra, Kiley, Maienschein, Obernolte, Petrie-Norris, Reyes

UPDATED:

VERSION: April 22, 2019

CONSULTANT: Michael Burdick / B. & F. / (916) 319-3081 FN: 0001237

Date of Hearing: July 2, 2019

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

SBPCA Bill Id:SB 187

Author:(Wieckowski) – As Amended Ver:April 22, 2019

PROPOSED CONSENT

SENATE VOTE: 38-0

SUBJECT: Rosenthal Fair Debt Collection Practices Act

KEY ISSUE: SHOULD THE ROSENTHAL FAIR DEBT COLLECTION PRACTICES ACT BE AMENDED TO CLARIFY THAT THE ACT REGULATES COLLECTION ACTIVITY ON MORTGAGE DEBT, AND REMOVE THE ACT’S EXEMPTION for CERTAIN ATTORNEYS WHO ENGAGE IN COLLECTION ACTIVITY?

SYNOPSIS

This straightforward bill would specify that collection of mortgage debt is among the forms of consumer debt collection that is regulated by the Rosenthal Fair Debt Collection Practices Act, thereby clarifying an unsettled point in California law. This clarification should enable mortgage lenders and servicers to adjust their collection activities to conform with the Rosenthal Act’s guidelines, and provide judges with guidance in applying the Act to mortgage-related collection activity.

This bill would also remove an exemption in the Rosenthal Act for attorneys who regularly, in the ordinary course of business, collect debts on behalf of themselves or others. While the State Bar of California is charged with disciplining attorneys who violate debt collection laws, data shows that the State Bar only disciplined seven attorneys for unfair collection practices in the ten-year period between 2009 and 2018. This is a paltry number in light of the number of violations that proponents suggest may go unpunished, and suggests that the Legislature should allow for private enforcement of the Act in order to deter unscrupulous collection attorneys.

The bill is supported by the California Labor Federation, the Consumer Attorneys of California, six legal aid organizations, and eight individual attorneys. It has no opposition.

SUMMARY: Amends the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) to, first, clarify that collection of mortgage debt is subject to the provisions of the Act, and second, eliminate from the Act an exemption for attorneys who, in the ordinary course of business, regularly engage in debt collection. Specifically, this bill:

1. Clarifies that the term “consumer debt,” as defined under the Rosenthal Act, includes a mortgage debt.
2. Makes an uncodified legislative statement that the statutory amendments which effect 1) “do not constitute a change in, but are declaratory of, existing law.”
3. Removes an exemption for “an attorney or counselor at law” from the definition of “debt collector” under the Rosenthal Act.
4. Makes several non-substantive, technical corrections to existing law.

EXISTING STATE LAW:

1. Regulates the practice of debt collection and the conduct of debt collectors under the Rosenthal Act. (Title 1.6C of Part 4 of Division 3 of the Civil Code, commencing with Section 1788.)
2. Finds and declares that “it is the purpose of [the Rosenthal Act] to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts and to require debtors to act fairly in entering into and honoring such debts, as specified in [the Act.]” (Civil Code Section 17881.1 (b).)
3. Defines the term “debt collection,” under the Rosenthal Act, to mean any act or practice in connection with the collection of consumer debts. (Civil Code Section 1788.2 (b).)
4. Defines the term “consumer debt,” under the Rosenthal Act, to mean money or property owed by a natural person due to that person’s acquisition, on credit, of property, services, or money used primarily for personal, family, or household purposes. (Civil Code Section 1788.2 (e), (f).)
5. Defines the term “debt collector,” under the Rosenthal Act, to mean any person who regularly, in the ordinary course of business, engages in debt collection on behalf of themselves or others. (Civil Code Section 1788.2 (c).)
6. Exempts attorneys and counselors at law from the Rosenthal Act’s definition of “debt collector” as set forth in 5). (Ibid.)
7. Requires an attorney, and any of that attorney’s employees, employed primarily to assist in the collection of a consumer debt owed to another to comply with a) the obligations imposed on debt collectors under the Rosenthal Act and b) other enumerated obligations. (Business and Professions Code Section 6077.5 (a) – (h).)
8. Specifies that an attorney’s willful breach of the obligations set forth in 7) will subject that attorney to discipline by the State Bar of California. (Business and Professions Code Section 6077.5 (i).)

EXISTING FEDERAL LAW regulates the practice of debt collection and the conduct of debt collectors under the Fair Debt Collection Practices Act (FDCPA). (15 U.S.C. Sections 1692-1692p.)

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

COMMENTS: This bill proposes to amend the Rosenthal Act’s definition of “consumer debt” in order to clarify that collection activity on mortgage debt is subject to the Act’s provisions. Whether the Act encompasses mortgage debt has been a topic of uncertainty for California courts; clarifying this point should provide guidance for mortgage lenders and servicers as to the scope of permissible collection activities, as well as free judicial resources to address other subjects. The bill would also delete an exemption from the definition of “debt collector” for attorneys who regularly, in the ordinary course of business, engage in debt collection on behalf of themselves or others. Data implies that State Bar regulation of collection attorneys is proving insufficient to deter violators, which suggests that private enforcement of the Rosenthal Act may be warranted.

Background re: the Rosenthal Act. The year 1977 saw the enactment of two pieces of legislation meant to regulate unfair and deceptive consumer debt collection practices: at the federal level, Congress enacted the Fair Debt Collection Practices Act; and in California, the Legislature enacted the Rosenthal Fair Debt Collection Practices Act. Prior to the codification of these Acts, abusive debt collection practices were largely addressed at the state level through tort law. (See, generally, Brosnahan, Debt Collection Tort Practice (1971).) The Acts, by explicitly delineating forbidden practices and making available statutory attorney fees for the private bar (and in the case of the FDCPA, also authorizing the Fair Trade Commission to bring enforcement actions), have proven a more effective method of deterring misconduct in this area.

A full review and comparison of the FDCPA and the Rosenthal Act are beyond the scope of this analysis. Several points are worth noting, however:

• There is substantial overlap between the two laws; in fact, the Rosenthal Act explicitly incorporates many of the FDCPA’s prohibitions. (See Civil Code Section 1788.17.)
• The Rosenthal Act, generally speaking, covers a broader scope of market actors than the FDCPA. The FDCPA only regulates the activities of debt collectors, i.e., those who “regularly collect[] or attempt[] to collect…debts owed or due…another.” (15 U.S.C. Section 1692a (6).) It excludes entities that originate loans (known as “original creditors”) and those that buy uncollectable debts in an attempt to collect them (known as “debt buyers.”) (See, generally, Henson v. Santander Consumer USA Inc. (2017) 582 U.S. __, 137 S. Ct. 1718.) By contrast, the Rosenthal Act regulates the activities of all three types of entities.
• Both laws rely largely on private, rather than public, enforcement of fair debt collection practices.

Clarifying that the Rosenthal Act covers collection of mortgage debt should help guide market actors while conserving judicial resources. The Supreme Court has implicitly recognized that the FDCPA covers collection activities on mortgage debt, other than those activities undertaken in connection with a nonjudicial foreclosure. (See Obduskey v. McCarthy & Holthus LLP (2019) --- U.S.---, 139 S. Ct. 1029.) No such definitive answer has emerged regarding the Rosenthal Act, which has led to some confusion among California courts.

According to the author:

My bill, SB 187, would ensure that people with mortgage debt are given the exact same type of protections and rights as people who have any other type of debt. It is unfortunate that courts have had conflicting rulings on whether or not the definition of “consumer debt” under the [Rosenthal] Fair Debt Collection Practices Act includes mortgage debt. Without those protections debt collectors can contact people multiple times a day at any hour and even threaten to foreclose homes despite payments being paid on time. The Act was established by legislators with the purpose to ensure all consumers are protected from harassment and abusive debt collection. My bill makes it clear in statue that people with mortgage debt will be given the same protections and will be treated fairly.

The reasons for amending the Rosenthal Act’s definition of “consumer debt” to clarify that it includes mortgage debt are illustrated by the recent appellate decision in Davidson v. Seterus, Inc. (2018) 21 Cal. App. 5th 283 (holding that mortgage lenders and mortgage servicers can be “debt collectors” under the Rosenthal Act). The plaintiff in Davidson made his mortgage payments on time every month, though he regularly utilized the grace period provided for under both Civil Code Section  2954.4 (a) (“A payment is not a ‘late payment’ for the purposes of this section until at least 10 days following the due date of the installment”) and the terms of his mortgage loan. Yet, as the court wrote:

Although [plaintiff] Davidson had a history of timely paying his mortgage each month, individuals identifying themselves as [defendant] Seterus employees called Davidson’s cell phone two to five times per day, every day, between the 3rd and the 16th of each month, “demanding that he pay that month’s mortgage payment.” If Davidson did not answer his phone, the caller would hang up and repeatedly call again until Davidson did answer the phone. According to Davidson, Seterus employees would also frequently hang up even if Davidson did answer his phone.

Between February 2012 and September 2015, Davidson received hundreds of phone calls from employees of Seterus demanding mortgage payments that Davidson had already paid or that were not yet due. Davidson alleges that Seterus employees would call at intentionally inconvenient times, including early in the morning and while Davidson was at work. […] In fact, Seterus employees would make these phone calls even after Davidson had paid the full amount due, and before the statutory and contractual grace period had lapsed. […]

According to Davidson, the phone calls from Seterus employees included threats to report negative credit information to the credit bureaus, as well as threats to foreclose on Davidson's home. These threats were made despite the fact that the calls were being made to Davidson and others during the grace period, such that it would have been unlawful for Seterus to commence foreclosure proceedings or to report negative credit information to the credit bureaus. (Davidson, supra, at 291-92.)

The plaintiff sued, alleging violations of several provisions of the Rosenthal Act, including bars on “[c]ausing a telephone to ring repeatedly or continuously to annoy the person called,” “[c]ommunicating, by telephone…with the debtor with such frequency as to be unreasonable and to constitute an harassment to the debtor under the circumstances,” and making a “false representation that information concerning a debtor’s failure or alleged failure to pay a consumer debt has been or is about to be referred to a consumer reporting agency.” (Civil Code Sections 1788.11 (d), (e); 1788.13 (f).) Yet the trial court sustained a demurrer to the plaintiff’s complaint without leave to amend, on the grounds that the defendant was not a “debt collector” under the Rosenthal Act. On appeal, the court overruled the demurrer after determining that the defendant was subject to the Rosenthal Act. But in order to reach this conclusion, the appellate court was forced into a lengthy statutory interpretation of the Rosenthal Act, required largely because, as the court wrote, “mortgage debt is neither expressly included nor excluded from the definition of ‘consumer debt[.]’” (Davidson, supra, at 296 (emphasis in original).)

Such extensive efforts, both at the trial court and appellate level, to resolve what ought to be a settled point of law wastes judicial resources. More importantly, if courts are unclear on this issue, then the actors in this space—mortgage lenders and mortgage servicers—are likely also confused, which probably leads to more harassment of individuals like the Davidson plaintiff. By clarifying that the definition of “consumer debt” includes mortgage debt, this measure should provide some much-needed guidance to creditors, debtors, lawyers, and the courts.

Removing the attorney exception from the Rosenthal Act will provide a better deterrent to collection misconduct and conserve scarce State Bar resources. The Rosenthal Act defines “debt collector” to mean “any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection,” but goes on to say that the term “does not include an attorney or counsel at law.” (Civil Code Section 1788.2.) [Note: for the sake of simplicity, the term “attorney,” as used in the remainder of this analysis, should be understood to encompass the phrase “attorney or counselor at law.”]

Attorneys who regularly, in the ordinary course of business, engage in debt collection are not left wholly-unregulated, however. Business and Professions Code Section 6077.5 is meant to regulate attorneys, and their employees “who are employed primarily to assist in the collection of a consumer debt.” A federal court described Business & Professions Code Section 6077.5 as follows:

[Section 6077.5], enacted seven years after the Rosenthal Act, requires an attorney, and “his or her employees who are employed primarily to assist in the collection of a consumer debt,” to comply with both the Rosenthal Act and certain other enumerated debt collection practices. Violators are subject to discipline by the State Bar of California, rather than by private action. Cal. Bus. & Prof. Code Section 6077.5 (i). The legislative history of section 6077.5 provides that “[t]he purpose of this bill is to ensure that attorneys comply with fair debt collection practices when collecting consumer debts. This bill is the result of negotiations between the State Bar and the collection agency industry following an ongoing dispute as to the extent of the attorney exemptions from the [Rosenthal Act.]” California Assembly Office of Research, Concurrence in Senate Amendments (AB 1252 (Calderon)), May 3, 1984, at 1. (Huy Thanh Vo v. Nelson & Kennard (E.D. Cal. 2013) 931 F. Supp. 2d 1080, 1094.)

According to the author, State Bar regulation in this area is not proving effective at deterring unfair and deceptive debt collection practices:

SB 187 removes the exception that an attorney is not subject to the enforcement provisions of the Rosenthal Act. There have been multiple reports from law organizations who have seen banks or debt collectors use law firms or attorneys to circumvent the protections given to people by the Act. People should be protected from abusive debt collection tactics regardless whether it is done by an attorney debt collector or a non-attorney debt collector.

Jake Walton, an attorney in private practice, provides the following story of debt collection harassment that was non-actionable because of the Rosenthal Act’s attorney exemption:

In 2015, I had the great privilege of representing an 87-year-old World War 2 veteran by the name of George Barber in a debt collection [action] that had been filed against him in San Diego Superior Court over a consumer debt by a debt buyer that appeared to be owned and operated in significant part by the representing law firm. […I]n my view, the Complaint was clearly time-barred and should not have been filed in the first place. However, the law firm was able to escape liability under the Rosenthal Act due to the attorney exemption.

Scott Maurer, a public interest attorney at the Katherine & George Alexander Community Law Center in San Jose, and a Clinic Professor at Santa Clara University School of Law writes:

In one case, a consumer who had been sued called the collection attorney and entered into a settlement agreement. After the consumer had timely made all her payments under the settlement agreement, the collection attorney garnished her wages and levied her bank account.

These sorts of abuses could be curbed by the private bar if this measure is enacted into law. The Senate Judiciary Committee analysis of this bill concluded with the following statement:

Violations of Section 6077.5 are subject to discipline by the State Bar of California. It is unclear whether any such discipline has been doled out pursuant to this statute.

According to information provided to this Committee by the author, in the ten-year period between 2009 and 2018, the State Bar disciplined a total of seven attorneys for violating Business & Professions Code Section 6077.5. By comparison, the 16 letters submitted in support of the bill alone describe seven specific stories of attorney violations of the Rosenthal Act. These numbers strongly suggest that State Bar enforcement of debt collection laws is proving insufficient to deter attorney misconduct, and argues strongly for permitting private enforcement, including against collection attorneys, through the Act. Allowing the status quo to persist would appear to essentially license collection attorneys to engage in unfair debt collection practices without fear of sanction.

ARGUMENTS IN SUPPORT: The California Low-Income Consumer Coalition, a bill supporter, writes in support of clarifying the Rosenthal Act’s coverage of mortgage debt collection, as follows:

In present-day California, the main issue is that, while the [Rosenthal Act] set up important regulatory mechanisms and protections for consumers, it is silent in regard to mortgage debt, an ever-important form of consumer debt. This results in collectors engaging in the deceptive, dishonest, and unreasonable debt collection practices that the Act is designed to prevent when they seek to recover from those with mortgage debts. Court decisions are split on the issue and consequently, there is a need to clarify that the law does indeed cover consumers with mortgage debts, allowing them the same rights and protections that other consumers have.

Ronald Wilcox, an individual attorney, writes in support of removing the Act’s exemption for attorneys who engage in collection activities, as follows:

SB187 removes the exception that an attorney is not subject to the enforcement provisions of the Rosenthal Act. There have been multiple reported cases of solo practicing attorneys, landlord attorneys, and law firms that have harassed individuals for payment. Consumers should be protected from harassment regardless whether it is perpetrated by an attorney debt collector or a non-attorney debt collector. […]

Lawyers should be required to conform to the law as well. The State Bar is overwhelmed, understaffed, and does not have the resources to prosecute attorneys for these violations of California consumer’s rights. The citizens of California should be afforded the opportunity of being able to vindicate their rights in court without the need of having to appeal to the State Bar. In fact, the Rosenthal [Act] and State Bar disciplinary process serve different functions.

Related Pending Legislation: SB 318 (Hertzberg, 2019) would amend the definition of “consumer debt” under the Rosenthal Act to include money owing from a transaction for services to finance or secure a bail bond or an immigration bond, as defined, for the release of an individual from detention. SB 318 is scheduled to be heard in this Committee on the same day as the instant measure.

Prior Related Legislation: AB 1526 (Kalra, Chap. 247, Stats. 2018) amended the Rosenthal Act to prohibit a debt collector from attempting to collect a time-barred debt without providing specific notices to the debtor indicating that the debtor may not be sued for the debt, but that the debt, depending on its age, could be reported as unpaid to credit reporting agencies, as specified.

AB 2825 (Jones-Sawyer, 2018) would have applied the protections of the Rosenthal 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. The bill died in the Senate Appropriations Committee.

AB 969 (Papan, Chap. 319, Stats. 1999) incorporated several provisions of the federal FDCPA into the Rosenthal Act by reference, thereby ensuring that violations of these FDCPA provisions would also constitute violations of the Rosenthal Act.

AB 1252 (Calderon, Chap. 118, Stats. 1984) set forth requirements for attorneys and their employees related to the collection of consumer debts, and charged the State Bar of California with enforcement of these requirements.

SB 237 (Robbins, Chap. 907, Stats. 1977) established what was then known as the Robbins-Rosenthal Fair Debt Collection Practices Act.

REGISTERED SUPPORT / OPPOSITION:

Support

Asian Law Alliance

California Labor Federation, AFL-CIO

California Low-Income Consumer Coalition

Consumer Attorneys of California

East Bay Community Law Center

Housing and Economic Rights Advocates

Legal Aid Association of California

Neighborhood Legal Services of Los Angeles County

8 individual attorneys

Opposition

None on file

Analysis Prepared by: Jith Meganathan / JUD. / (916) 319-2334

Date of Hearing: June 24, 2019

ASSEMBLY COMMITTEE ON BANKING AND FINANCE

Monique Limón, Chair

SBPCA Bill Id:SB 187

Author:(Wieckowski) – As Amended Ver:April 22, 2019

SENATE VOTE: 38-0

SUBJECT: Rosenthal Fair Debt Collection Practices Act

SUMMARY: Clarifies that the definition of “consumer debt” in the Rosenthal Fair Debt Collections Practices Act (RFDCPA) includes mortgage debt. Removes the exception for attorneys in the definition of “debt collector.”

Specifically, this bill:

1. Clarifies, for purposes of the RFDCPA, that “consumer debt” includes a mortgage debt. It makes clear that the intent of the Legislature in so amending this definition is to clarify existing law.
2. Removes the exception for attorneys and counselors at law from the definition of “debt collector.”
3. Makes a series of nonsubstantive changes.

EXISTING LAW:

1. Regulates the collection of consumer debt under the Rosenthal Fair Debt Collections Practices Act, which generally prohibits deceptive, dishonest, unfair, and unreasonable debt collection practices by debt collectors and regulates the form and content of communications by debt collectors to debtors and others. (Title 1.6C of Part 4 of Division 3 of the Civil Code, Section 1788 et seq.)
2. 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. (Civil Code, Section 1788.2)

FISCAL EFFECT: This bill is keyed nonfiscal.

COMMENTS:

1. PURPOSE

According to the author:

My bill, SB 187, would ensure that people with mortgage debt are given the exact same type of protections and rights as people who have any other type of debt. It is unfortunate that courts have had conflicting rulings on whether or not the definition of "consumer debt" under the California Fair Debt Collection Practices Act includes mortgage debt. Without those protections debt collectors can contact people multiple times a day at any hour and even threaten to foreclose homes despite payments being paid on time. The Act was established by legislators with the purpose to ensure all consumers are protected from harassment and abusive debt collection. My bill makes it clear in statue that people with mortgage debt will be given the same protections and will be treated fairly. In addition, SB 187 removes the exception that an attorney is not subject to the enforcement provisions of the Rosenthal Act. There have been multiple reports from law organizations who have seen banks or debt collectors use law firms or attorneys to circumvent the protections given to people by the Act. People should be protected from abusive debt collection tactics regardless whether it is done by an attorney debt collector or a non-attorney debt collector.

1. BACKGROUND

The Rosenthal Fair Debt Collection Practices Act (RFDCPA) defines consumer debt as “money, property or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction.” The definitions do not specifically include the words “mortgage debt” which has led some courts to rule that mortgage debt is not covered by the Rosenthal Act.

Secondly, there have been multiple reported cases from organizations such as East Bay Community Law Center of solo practicing attorneys, landlord attorneys, and law firms that have harassed individuals for payment. Consumers should be protected from harassment regardless whether it is perpetrated by an attorney debt collector or a non-attorney debt collector.

1. COMMONSENSE PROTECTIONS

This bill would ensure that courts do not mistakenly exempt consumers who owe mortgage debt from commonsense protections, including prohibiting debt collectors from engaging in unscrupulous activities such as the use of violence or profanity, defamation, and the false representation of an attorney. To be clear, this bill does not affect the enforceability of amounts owed by a consumer on a mortgage debt – the consumer is still responsible for paying the amount owed. The bill also ensures that consumers are protected from harassment regardless whether it is perpetrated by an attorney debt collector or a non-attorney debt collector.

REGISTERED SUPPORT / OPPOSITION:

Support

Andrew S. Cho ALC
Asian Law Alliance
California Labor Federation, AFL-CIO
California Low-Income Consumer Coalition
Consumer Attorneys of California
Consumer Law Office of Robert Stempler
Deos Law

East Bay Community Law Center
Housing & Economic Right Advocates
Katharine & George Alexander Community Law Center
The Jake A. Walton Law Firm

Legal Aid Association of California
Neighborhood Legal Services of Los Angeles County

Opposition

None received.

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

 THIRD READING  

Bill No: SB 187

Author: Wieckowski (D)

Amended: 4/22/19

Vote: 21

SENATE JUDICIARY COMMITTEE: 8-0, 4/9/19

AYES: Jackson, Borgeas, Allen, Caballero, Monning, Stern, Umberg, Wieckowski

SUBJECT: Rosenthal Fair Debt Collection Practices Act

SOURCE: Author

DIGEST:

This bill amends definitions in the Rosenthal Fair Debt Collection Practices Act, removing the exception for attorneys in the definition of “debt collector” and clarifying that the definition of “consumer debt” includes mortgage debt.

Senate Floor Amendments of 4/22/19 provide greater clarify of the uncodified language in the bill.

ANALYSIS:

Existing law:

1. Establishes the Rosenthal Fair Debt Collection Practices Act (Act) with the purpose to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts and to require debtors to act fairly in entering into and honoring such debts. (Civ. Code § 1788 et seq.)
2. Defines, for purposes of the Act, “debt collection” as any act or practice in connection with the collection of consumer debts. (Civ. Code § 1788.2(b).)
3. Defines “consumer debt” to mean money, property, or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction. “Consumer credit transaction” means a transaction between a natural person and another person in which property, services or money is acquired on credit by that natural person from such other person primarily for personal, family, or household purposes. (Civ. Code § 1788.2(e), (f).)
4. 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 § 1788.2(c).)

This bill:

1. Clarifies, for purposes of the Act, that “consumer debt” includes a mortgage debt. It makes clear that this change does not constitute a change in law, but is simply declaratory of existing law.
2. Removes the exception for attorneys and counselors at law from the definition of “debt collector.”
3. Makes a series of nonsubstantive changes.

Background

Executive Summary

Existing law regulates the collection of “consumer debt” under the Act by “debt collectors.”

Courts have split over whether mortgage debt is to be considered “consumer debt” and therefore subject to the protections of the Act. A recent California Court of Appeal decision reviewed the case law and the statutory history of the Act and found that the Act “applies to a mortgage servicer who engages in debt collection practices in attempting to obtain repayment of mortgage debt.” (Davidson v. Seterus, Inc. (2018) 21 Cal.App.5th 283, 304.)

This bill explicitly includes mortgage debt within the definition of consumer debt; and further states that this inclusion is declaratory of existing law.

The definition of “debt collectors” that are subject to the Act includes an exception for attorneys and counselors at law. This bill removes that exception. The author cites to evidence that mortgage servicers are using law firms to circumvent the protections of the Act.

This is an author-sponsored bill. It is supported by various consumer and advocacy groups. There is no known opposition.

Comments

Ensuring fair debt collection

Existing law regulates the collection of consumer debt under the Rosenthal Fair Debt Collections Practices Act (the Act). The purpose of the Act is to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts and to require debtors to act fairly in entering into and honoring such debts. (Civ. Code § 1788 et seq.) The Act generally prohibits deceptive, dishonest, unfair, and unreasonable debt collection practices by debt collectors and regulates the form and content of communications by debt collectors to debtors and others. Relevant here are two definitions that establish the scope of the Act, “consumer debt” and “debt collector.”

Consumer debt includes mortgage debt

For purposes of the Act, “consumer debt” is defined as “money, property, or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction.” (Civ. Code § 1788.2(f).) “Consumer credit transaction” is defined as “a transaction between a natural person and another person in which property, services or money is acquired on credit by that natural person from such other person primarily for personal, family, or household purposes.” (Civ. Code § 1788.2(e).) One question that has repeatedly been litigated in actions brought pursuant to the Act is whether the collection of mortgage debt is covered under the Act.

A plain reading of the statute’s language provides no evidence that a mortgage debt should be treated any differently than other debts. Specifically, a mortgage debt is money owing from a transaction in which property is acquired on credit primarily for personal, family, or household purposes. However, courts have applied varying interpretations and come to different conclusions on this question.

One recent California Court of Appeal opinion squarely addressed the question, framing it as follows:

The Rosenthal Act is silent with respect to whether it applies to persons or entities attempting to collect mortgage debt; the definitions of “debt collector,” “consumer debt,” and “consumer credit transaction” make no reference to mortgage lenders and/or servicers or to mortgage debt. Given that mortgage debt is neither expressly included nor excluded from the definition of “consumer debt,” and that a mortgage transaction is neither expressly included nor excluded from the definition of “consumer credit transaction,” we look to the words of the statute to determine whether they can be understood to either include or exclude from the statute’s purview mortgage debt or mortgage lenders and/or servicers, keeping in mind that the Rosenthal Act “‘should be interpreted broadly in order to effectuate its purpose.’”

(Davidson v. Seterus, Inc. (“Seterus”) (2018) 21 Cal.App.5th 283, 296, citing Komarova v. National Credit Acceptance, Inc. (2009) 175 Cal.App.4th 324, 340.)

The Seterus court concluded that the collection of mortgage debt was covered by the Act and laid out its reasoning:

The obtaining of a mortgage involves a transaction in which a natural person acquires property by way of borrowing the funds used to obtain the property from another person or entity without full immediate payment and with the promise to pay back those funds. It is readily apparent that persons who obtain mortgages very often do so in order to purchase a primary or even secondary residence, which may be considered to be a “personal, family, or household purpose[].” (§ 1788.2, subd. (e).) Further, there is nothing in the statutory definition of “consumer debt” or “consumer credit transaction” that would exclude a debt that otherwise comes within the terms of the Rosenthal Act merely because the debt is secured by real or personal property. At least one other California appellate court has permitted a Rosenthal Act claim to go forward against a lender who was attempting to collect on a residential mortgage loan secured by a junior lien. (See Alborzian v. JPMorgan Chase Bank, N.A. (2015) 235 Cal.App.4th 29.)

(Seterus, 21 Cal.App.5th at 297.)

Many federal courts interpreting California’s law have reached the same conclusion. (See, e.g., Sau King Chan (S.D. Cal. 2017) 2017 WL 1807947, at p. *3; Castillo v. Nationstar Mortgage LLC (N.D. Cal. 2016) 2016 WL 6873526, at p. *5 [plaintiffs established defendant was a “debt collector” under the Act by showing that the defendant “regularly billed them and collected payments on their mortgage loan debt”]; Wilkins v. Bank of America, N.A. (E.D. Cal. 2016) 2016 WL 5940082, at p. *7 [“mortgage servicer and an original lender may be ‘debt collectors’ under the Rosenthal Act”]; Walters v. Fidelity Mortgage of California, (E.D. Cal. 2010) 730 F.Supp.2d 1185, 1203 [mortgage servicer that regularly billed plaintiff and collected payments on her mortgage debt was a “debt collector” under the Act].)

However, numerous federal court cases have found the opposite, concluding that mortgage debt and the collection of such debt is not covered by the Act. (See, e.g., Lal v. American Home Servicing, Inc. (E.D. Cal. 2010) 680 F.Supp.2d 1218, 1224 [finding the Act mirrors the federal counterpart]; Abels v. Bank of America, N.A. (N.D. Cal. 2012) 2012 WL 1980858, at p. *2 [finding “a loan servicer is not a debt collector regulated by the Act”]; Glover v. Fremont Investment and Loan (N.D.Cal. 2009) 2009 WL 5114001, at p. *8 [concluding that a mortgage loan servicer “is not a ‘debt collector’ within the meaning of the debt collection statutes”]; Mannello v. Residential Credit Solutions, Inc. (C.D. Cal. 2016) 2016 WL 94236, at p. *5.)

The Seterus court addressed the split in authority in the federal courts:

In our view, those federal courts that have concluded that section 1788.2’s definition of “debt collector” may include mortgage lenders and mortgage servicers have the better position under an analysis of the actual statutory language. Significantly, a number of the federal courts that have concluded that mortgage lenders and servicers may not be considered to be “debt collectors” under the Rosenthal Act have either not considered the actual language of the Rosenthal Act or have relied on the fact that mortgage lenders and mortgage servicers would not be “debt collectors” under the [federal Fair Debt Collection Practices Act (FDCPA)] in reaching their conclusion regarding the Rosenthal Act. This reasoning is problematic, however, because the FDCPA statutory definition of “debt collector” differs significantly from the definition of “debt collector” provided under the Rosenthal Act; the definition of “debt collector” provided in the Rosenthal Act is far broader than that provided in the FDCPA. The Rosenthal Act does not mirror the FDCPA, and clearly does not do so with respect to the definition of “debt collector.” (Compare § 1788.2, subd. (c) with 15 U.S.C. § 1692a(6).)

(Seterus, 21 Cal.App.5th at 303, citations omitted, italics in original.)

This bill definitively provides that “consumer debt” includes a mortgage debt and makes clear that this is declaratory of existing law. Just as the court in Seterus pointed out, interpreting the Act to include improper collection of mortgage debt “furthers the purpose of the legislation, which is to prohibit entities who are attempting to collect on a debt from ‘engaging in unfair or deceptive acts or practices in the collection of [those] debts.’ (§ 1788.1, subd. (b).)” (Seterus, 21 Cal.App.5th at 297.) The policy rationale for including such debt is that Californians should be protected from abusive and deceptive debt collection practices regardless of whether the purchase was for real or personal property.

The plaintiff in Seterus alleged that the defendant engaged in harassing phone calls at all hours of the day, and threatened to report the plaintiff to credit agencies or to foreclose on the loan even though such actions would have been unlawful. Just as the court pointed out, this “is precisely the type of conduct that the Legislature wanted to protect consumers against when it enacted the Rosenthal Act.” (Seterus, 21 Cal.App.5th at 297-298, citing Senate Committee on Judiciary, Analysis SB 237 (1977–1978 Reg. Sess.) [“This bill would prohibit any person from engaging in certain debt collection practices” including a “list of prohibited threatening, abusive and deceptive practices”]; Assembly Committee on Judiciary, Analysis SB 237 (1977–1978 Reg. Sess.) [“This measure governs all debt collection practices arising from the extension of credit if the credit was obtained primarily for personal, family, or household purposes” and prohibits, among other things, “caus[ing] a telephone to ring repeatedly”].)

Intent of the bill

According to the author:

My bill, SB 187, would ensure that people with mortgage debt are given the exact same type of protections and rights as people who have any other type of debt. It is unfortunate that courts have had conflicting rulings on whether or not the definition of “consumer debt” under the California Fair Debt Collection Practices Act includes mortgage debt. Without those protections debt collectors can contact people multiple times a day at any hour and even threaten to foreclose homes despite payments being paid on time. The Act was established by legislators with the purpose to ensure all consumers are protected from harassment and abusive debt collection. My bill makes it clear in statue that people with mortgage debt will be given the same protections and will be treated fairly.

Removing the exception for attorneys

The Act provides a definition of “debt collector” that specifically provides that it “does not include an attorney or counselor at law.” (Civ. Code § 1788.2 (c).) This bill removes this exception. The author argues that the amendment is needed because there have been numerous cases where attorneys and law firms have been used by banks or mortgage servicers to circumvent the protections given to people by the Act. 

Again, the courts have been split on whether the attorney exception applies similarly to law firms. (Compare Huy Thanh Vo v. Nelson & Kennard (E.D. Cal. 2013) 931 F.Supp.2d 1080, 1094 [finding the “‘attorney’ exemption from the definition of ‘debt collector’ under the Rosenthal Act does not extend to ‘law firms’”] with Green v. Creditor Iustus Remedium, LLP (E.D. Cal. 2013) 2013 U.S. Dist. LEXIS 161298, at *19 [disagreeing with the reasoning in Vo].)

This bill eliminates the exception for both law firms and attorneys. It should be noted that Section 6077.5 of the Business and Professions Code sets out various requirements for attorneys and their employees who are employed “primarily to assist in the collection of a consumer debt owed to another.” Included therein is a requirement that such attorneys and employees are required to comply with the obligations imposed on debt collectors pursuant to the Act. Violations of Section 6077.5 are subject to discipline by the State Bar of California. It is unclear whether any such discipline has been doled out pursuant to this statute.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 4/22/19)

Asian Law Alliance

California Labor Federation

California Low-Income Consumer Coalition

Consumer Attorneys of California

East Bay Community Law Center

Housing and Economic Rights Advocates

Neighborhood Legal Services of Los Angeles County

OPPOSITION: (Verified 4/22/19)

None received

ARGUMENTS IN SUPPORT: Writing in strong support, the Asian Law Alliance states that the bill “will ensure that mortgage servicers adhere to the Rosenthal Fair Debt Practices Act and will protect consumers with mortgage debts from unwarranted and aggressive harassment from debt collectors.”

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

4/24/19 14:48:33

**** END ****

 THIRD READING  

Bill No: SB 187

Author: Wieckowski (D)

Amended: 3/18/19

Vote: 21

SENATE JUDICIARY COMMITTEE: 8-0, 4/9/19

AYES: Jackson, Borgeas, Allen, Caballero, Monning, Stern, Umberg, Wieckowski

SUBJECT: Rosenthal Fair Debt Collection Practices Act

SOURCE: Author

DIGEST:

This bill amends definitions in the Rosenthal Fair Debt Collection Practices Act, removing the exception for attorneys in the definition of “debt collector” and clarifying that the definition of “consumer debt” includes mortgage debt.

ANALYSIS:

Existing law:

1. Establishes the Rosenthal Fair Debt Collection Practices Act (Act) with the purpose to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts and to require debtors to act fairly in entering into and honoring such debts. (Civ. Code § 1788 et seq.)
2. Defines, for purposes of the Act, “debt collection” as any act or practice in connection with the collection of consumer debts. (Civ. Code § 1788.2(b).)
3. Defines “consumer debt” to mean money, property, or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction. “Consumer credit transaction” means a transaction between a natural person and another person in which property, services or money is acquired on credit by that natural person from such other person primarily for personal, family, or household purposes. (Civ. Code § 1788.2(e), (f).)
4. 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 § 1788.2(c).)

This bill:

1. Clarifies, for purposes of the Act, that “consumer debt” includes a mortgage debt. It makes clear that the intent of the Legislature in so amending this definition is to clarify existing law.
2. Removes the exception for attorneys and counselors at law from the definition of “debt collector.”
3. Makes a series of nonsubstantive changes.

Background

Executive Summary

Existing law regulates the collection of “consumer debt” under the Act by “debt collectors.”

Courts have split over whether mortgage debt is to be considered “consumer debt” and therefore subject to the protections of the Act. A recent California Court of Appeal decision reviewed the case law and the statutory history of the Act and found that the Act “applies to a mortgage servicer who engages in debt collection practices in attempting to obtain repayment of mortgage debt.” (Davidson v. Seterus, Inc. (2018) 21 Cal.App.5th 283, 304.)

This bill explicitly includes mortgage debt within the definition of consumer debt; and further states that this inclusion is declaratory of existing law.

The definition of “debt collectors” that are subject to the Act includes an exception for attorneys and counselors at law. This bill removes that exception. The author cites to evidence that mortgage servicers are using law firms to circumvent the protections of the Act.

This is an author-sponsored bill. It is supported by various consumer and advocacy groups. There is no known opposition.

Comments

Ensuring fair debt collection

Existing law regulates the collection of consumer debt under the Rosenthal Fair Debt Collections Practices Act (the Act). The purpose of the Act is to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts and to require debtors to act fairly in entering into and honoring such debts. (Civ. Code § 1788 et seq.) The Act generally prohibits deceptive, dishonest, unfair, and unreasonable debt collection practices by debt collectors and regulates the form and content of communications by debt collectors to debtors and others. Relevant here are two definitions that establish the scope of the Act, “consumer debt” and “debt collector.”

Consumer debt includes mortgage debt

For purposes of the Act, “consumer debt” is defined as “money, property, or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction.” (Civ. Code § 1788.2(f).) “Consumer credit transaction” is defined as “a transaction between a natural person and another person in which property, services or money is acquired on credit by that natural person from such other person primarily for personal, family, or household purposes.” (Civ. Code § 1788.2(e).) One question that has repeatedly been litigated in actions brought pursuant to the Act is whether the collection of mortgage debt is covered under the Act.

A plain reading of the statute’s language provides no evidence that a mortgage debt should be treated any differently than other debts. Specifically, a mortgage debt is money owing from a transaction in which property is acquired on credit primarily for personal, family, or household purposes. However, courts have applied varying interpretations and come to different conclusions on this question.

One recent California Court of Appeal opinion squarely addressed the question, framing it as follows:

The Rosenthal Act is silent with respect to whether it applies to persons or entities attempting to collect mortgage debt; the definitions of “debt collector,” “consumer debt,” and “consumer credit transaction” make no reference to mortgage lenders and/or servicers or to mortgage debt. Given that mortgage debt is neither expressly included nor excluded from the definition of “consumer debt,” and that a mortgage transaction is neither expressly included nor excluded from the definition of “consumer credit transaction,” we look to the words of the statute to determine whether they can be understood to either include or exclude from the statute’s purview mortgage debt or mortgage lenders and/or servicers, keeping in mind that the Rosenthal Act “‘should be interpreted broadly in order to effectuate its purpose.’”

(Davidson v. Seterus, Inc. (“Seterus”) (2018) 21 Cal.App.5th 283, 296, citing Komarova v. National Credit Acceptance, Inc. (2009) 175 Cal.App.4th 324, 340.)

The Seterus court concluded that the collection of mortgage debt was covered by the Act and laid out its reasoning:

The obtaining of a mortgage involves a transaction in which a natural person acquires property by way of borrowing the funds used to obtain the property from another person or entity without full immediate payment and with the promise to pay back those funds. It is readily apparent that persons who obtain mortgages very often do so in order to purchase a primary or even secondary residence, which may be considered to be a “personal, family, or household purpose[].” (§ 1788.2, subd. (e).) Further, there is nothing in the statutory definition of “consumer debt” or “consumer credit transaction” that would exclude a debt that otherwise comes within the terms of the Rosenthal Act merely because the debt is secured by real or personal property. At least one other California appellate court has permitted a Rosenthal Act claim to go forward against a lender who was attempting to collect on a residential mortgage loan secured by a junior lien. (See Alborzian v. JPMorgan Chase Bank, N.A. (2015) 235 Cal.App.4th 29.)

(Seterus, 21 Cal.App.5th at 297.)

Many federal courts interpreting California’s law have reached the same conclusion. (See, e.g., Sau King Chan (S.D. Cal. 2017) 2017 WL 1807947, at p. *3; Castillo v. Nationstar Mortgage LLC (N.D. Cal. 2016) 2016 WL 6873526, at p. *5 [plaintiffs established defendant was a “debt collector” under the Act by showing that the defendant “regularly billed them and collected payments on their mortgage loan debt”]; Wilkins v. Bank of America, N.A. (E.D. Cal. 2016) 2016 WL 5940082, at p. *7 [“mortgage servicer and an original lender may be ‘debt collectors’ under the Rosenthal Act”]; Walters v. Fidelity Mortgage of California, (E.D. Cal. 2010) 730 F.Supp.2d 1185, 1203 [mortgage servicer that regularly billed plaintiff and collected payments on her mortgage debt was a “debt collector” under the Act].)

However, numerous federal court cases have found the opposite, concluding that mortgage debt and the collection of such debt is not covered by the Act. (See, e.g., Lal v. American Home Servicing, Inc. (E.D. Cal. 2010) 680 F.Supp.2d 1218, 1224 [finding the Act mirrors the federal counterpart]; Abels v. Bank of America, N.A. (N.D. Cal. 2012) 2012 WL 1980858, at p. *2 [finding “a loan servicer is not a debt collector regulated by the Act”]; Glover v. Fremont Investment and Loan (N.D.Cal. 2009) 2009 WL 5114001, at p. *8 [concluding that a mortgage loan servicer “is not a ‘debt collector’ within the meaning of the debt collection statutes”]; Mannello v. Residential Credit Solutions, Inc. (C.D. Cal. 2016) 2016 WL 94236, at p. *5.)

The Seterus court addressed the split in authority in the federal courts:

In our view, those federal courts that have concluded that section 1788.2’s definition of “debt collector” may include mortgage lenders and mortgage servicers have the better position under an analysis of the actual statutory language. Significantly, a number of the federal courts that have concluded that mortgage lenders and servicers may not be considered to be “debt collectors” under the Rosenthal Act have either not considered the actual language of the Rosenthal Act or have relied on the fact that mortgage lenders and mortgage servicers would not be “debt collectors” under the [federal Fair Debt Collection Practices Act (FDCPA)] in reaching their conclusion regarding the Rosenthal Act. This reasoning is problematic, however, because the FDCPA statutory definition of “debt collector” differs significantly from the definition of “debt collector” provided under the Rosenthal Act; the definition of “debt collector” provided in the Rosenthal Act is far broader than that provided in the FDCPA. The Rosenthal Act does not mirror the FDCPA, and clearly does not do so with respect to the definition of “debt collector.” (Compare § 1788.2, subd. (c) with 15 U.S.C. § 1692a(6).)

(Seterus, 21 Cal.App.5th at 303, citations omitted, italics in original.)

This bill definitively provides that “consumer debt” includes a mortgage debt and makes clear that this is declaratory of existing law. Just as the court in Seterus pointed out, interpreting the Act to include improper collection of mortgage debt “furthers the purpose of the legislation, which is to prohibit entities who are attempting to collect on a debt from ‘engaging in unfair or deceptive acts or practices in the collection of [those] debts.’ (§ 1788.1, subd. (b).)” (Seterus, 21 Cal.App.5th at 297.) The policy rationale for including such debt is that Californians should be protected from abusive and deceptive debt collection practices regardless of whether the purchase was for real or personal property.

The plaintiff in Seterus alleged that the defendant engaged in harassing phone calls at all hours of the day, and threatened to report the plaintiff to credit agencies or to foreclose on the loan even though such actions would have been unlawful. Just as the court pointed out, this “is precisely the type of conduct that the Legislature wanted to protect consumers against when it enacted the Rosenthal Act.” (Seterus, 21 Cal.App.5th at 297-298, citing Senate Committee on Judiciary, Analysis SB 237 (1977–1978 Reg. Sess.) [“This bill would prohibit any person from engaging in certain debt collection practices” including a “list of prohibited threatening, abusive and deceptive practices”]; Assembly Committee on Judiciary, Analysis SB 237 (1977–1978 Reg. Sess.) [“This measure governs all debt collection practices arising from the extension of credit if the credit was obtained primarily for personal, family, or household purposes” and prohibits, among other things, “caus[ing] a telephone to ring repeatedly”].)

Intent of the bill

According to the author:

My bill, SB 187, would ensure that people with mortgage debt are given the exact same type of protections and rights as people who have any other type of debt. It is unfortunate that courts have had conflicting rulings on whether or not the definition of “consumer debt” under the California Fair Debt Collection Practices Act includes mortgage debt. Without those protections debt collectors can contact people multiple times a day at any hour and even threaten to foreclose homes despite payments being paid on time. The Act was established by legislators with the purpose to ensure all consumers are protected from harassment and abusive debt collection. My bill makes it clear in statue that people with mortgage debt will be given the same protections and will be treated fairly.

Removing the exception for attorneys

The Act provides a definition of “debt collector” that specifically provides that it “does not include an attorney or counselor at law.” (Civ. Code § 1788.2 (c).) This bill removes this exception. The author argues that the amendment is needed because there have been numerous cases where attorneys and law firms have been used by banks or mortgage servicers to circumvent the protections given to people by the Act. 

Again, the courts have been split on whether the attorney exception applies similarly to law firms. (Compare Huy Thanh Vo v. Nelson & Kennard (E.D. Cal. 2013) 931 F.Supp.2d 1080, 1094 [finding the “‘attorney’ exemption from the definition of ‘debt collector’ under the Rosenthal Act does not extend to ‘law firms’”] with Green v. Creditor Iustus Remedium, LLP (E.D. Cal. 2013) 2013 U.S. Dist. LEXIS 161298, at *19 [disagreeing with the reasoning in Vo].)

This bill eliminates the exception for both law firms and attorneys. It should be noted that Section 6077.5 of the Business and Professions Code sets out various requirements for attorneys and their employees who are employed “primarily to assist in the collection of a consumer debt owed to another.” Included therein is a requirement that such attorneys and employees are required to comply with the obligations imposed on debt collectors pursuant to the Act. Violations of Section 6077.5 are subject to discipline by the State Bar of California. It is unclear whether any such discipline has been doled out pursuant to this statute.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 4/11/19)

Asian Law Alliance

California Low-Income Consumer Coalition

Consumer Attorneys of California

East Bay Community Law Center

Housing and Economic Rights Advocates

Neighborhood Legal Services of Los Angeles County

OPPOSITION: (Verified 4/11/19)

None received

ARGUMENTS IN SUPPORT: Writing in strong support, the Asian Law Alliance states that the bill “will ensure that mortgage servicers adhere to the Rosenthal Fair Debt Practices Act and will protect consumers with mortgage debts from unwarranted and aggressive harassment from debt collectors.”

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

4/18/19 10:58:01

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2019-2020 Regular Session

Bill No: SB 187 (Author:Wieckowski)

Version: March 18, 2019

Hearing Date: April 9, 2019

Fiscal: No

Urgency: No

Consultant: CK

SUBJECT

Rosenthal Fair Debt Collection Practices Act

DIGEST

This bill amends definitions in the Rosenthal Fair Debt Collections Practices Act, removing the exception for attorneys in the definition of “debt collector” and clarifying that the definition of “consumer debt” includes mortgage debt.

EXECUTIVE SUMMARY

Existing law regulates the collection of “consumer debt” under the Rosenthal Fair Debt Collections Practices Act (the Act) by “debt collectors.”

Courts have split over whether mortgage debt is to be considered “consumer debt” and therefore subject to the protections of the Act. A recent California Court of Appeal decision reviewed the case law and the statutory history of the Act and found that the Act “applies to a mortgage servicer who engages in debt collection practices in attempting to obtain repayment of mortgage debt.” (Davidson v. Seterus, Inc. (2018) 21 Cal.App.5th 283, 304.)

This bill explicitly includes mortgage debt within the definition of consumer debt. The bill further states that this inclusion is declaratory of existing law.

The definition of “debt collectors” that are subject to the Act includes an exception for attorneys and counselors at law. This bill removes that exception. The author cites to evidence that mortgage servicers are using law firms to circumvent the protections of the Act.

This is an author-sponsored bill. It is supported by various consumer and advocacy groups. There is no known opposition.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Establishes the Rosenthal Fair Debt Collection Practices Act (“the Act”) with the purpose to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts and to require debtors to act fairly in entering into and honoring such debts. (Civ. Code § 1788 et seq.)
2. Defines, for purposes of the Act, “debt collection” as any act or practice in connection with the collection of consumer debts. (Civ. Code § 1788.2(b).)
3. Defines “consumer debt” to mean money, property, or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction. “Consumer credit transaction” means a transaction between a natural person and another person in which property, services or money is acquired on credit by that natural person from such other person primarily for personal, family, or household purposes. (Civ. Code § 1788.2(e), (f).)
4. 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 § 1788.2(c).)

This bill:

1. Clarifies, for purposes of the Act, that “consumer debt” includes a mortgage debt. It makes clear that the intent of the Legislature in so amending this definition is to clarify existing law.
2. Removes the exception for attorneys and counselors at law from the definition of “debt collector.”
3. Makes a series of nonsubstantive changes.

COMMENTS

1. Ensuring fair debt collection

Existing law regulates the collection of consumer debt under the Rosenthal Fair Debt Collections Practices Act (the Act). The purpose of the Act is to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts and to require debtors to act fairly in entering into and honoring such debts. (Civ. Code § 1788 et seq.) The Act generally prohibits deceptive, dishonest, unfair, and unreasonable debt collection practices by debt collectors and regulates the form and content of communications by debt collectors to debtors and others. Relevant here are two definitions that establish the scope of the Act, “consumer debt” and “debt collector.”

1. Consumer debt includes mortgage debt

For purposes of the Act, “consumer debt” is defined as “money, property, or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction.” (Civ. Code § 1788.2(f).) “Consumer credit transaction” is defined as “a transaction between a natural person and another person in which property, services or money is acquired on credit by that natural person from such other person primarily for personal, family, or household purposes.” (Civ. Code § 1788.2(e).) One question that has repeatedly been litigated in actions brought pursuant to the Act is whether the collection of mortgage debt is covered under the Act.

A plain reading of the statute’s language provides no evidence that a mortgage debt should be treated any differently than other debts. Specifically, a mortgage debt is money owing from a transaction in which property is acquired on credit primarily for personal, family, or household purposes. However, courts have applied varying interpretations and come to different conclusions on this question.

One recent California Court of Appeal opinion squarely addressed the question, framing it as follows:

The Rosenthal Act is silent with respect to whether it applies to persons or entities attempting to collect mortgage debt; the definitions of “debt collector,” “consumer debt,” and “consumer credit transaction” make no reference to mortgage lenders and/or servicers or to mortgage debt. Given that mortgage debt is neither expressly included nor excluded from the definition of “consumer debt,” and that a mortgage transaction is neither expressly included nor excluded from the definition of “consumer credit transaction,” we look to the words of the statute to determine whether they can be understood to either include or exclude from the statute’s purview mortgage debt or mortgage lenders and/or servicers, keeping in mind that the Rosenthal Act “‘should be interpreted broadly in order to effectuate its purpose.’”

(Davidson v. Seterus, Inc. (“Seterus”) (2018) 21 Cal.App.5th 283, 296, citing Komarova v. National Credit Acceptance, Inc. (2009) 175 Cal.App.4th 324, 340.)

The Seterus court concluded that the collection of mortgage debt was covered by the Act and laid out its reasoning:

The obtaining of a mortgage involves a transaction in which a natural person acquires property by way of borrowing the funds used to obtain the property from another person or entity without full immediate payment and with the promise to pay back those funds. It is readily apparent that persons who obtain mortgages very often do so in order to purchase a primary or even secondary residence, which may be considered to be a “personal, family, or household purpose[].” (§ 1788.2, subd. (e).) Further, there is nothing in the statutory definition of “consumer debt” or “consumer credit transaction” that would exclude a debt that otherwise comes within the terms of the Rosenthal Act merely because the debt is secured by real or personal property. At least one other California appellate court has permitted a Rosenthal Act claim to go forward against a lender who was attempting to collect on a residential mortgage loan secured by a junior lien. (See Alborzian v. JPMorgan Chase Bank, N.A. (2015) 235 Cal.App.4th 29.)

(Seterus, 21 Cal.App.5th at 297.)

Many federal courts interpreting California’s law have reached the same conclusion. (See, e.g., Sau King Chan (S.D. Cal. 2017) 2017 WL 1807947, at p. *3; Castillo v. Nationstar Mortgage LLC (N.D. Cal. 2016) 2016 WL 6873526, at p. *5 [plaintiffs established defendant was a “debt collector” under the Act by showing that the defendant “regularly billed them and collected payments on their mortgage loan debt”]; Wilkins v. Bank of America, N.A. (E.D. Cal. 2016) 2016 WL 5940082, at p. *7 [“mortgage servicer and an original lender may be ‘debt collectors’ under the Rosenthal Act”]; Walters v. Fidelity Mortgage of California, (E.D. Cal. 2010) 730 F.Supp.2d 1185, 1203 [mortgage servicer that regularly billed plaintiff and collected payments on her mortgage debt was a “debt collector” under the Act].)

However, numerous federal court cases have found the opposite, concluding that mortgage debt and the collection of such debt is not covered by the Act. (See, e.g., Lal v. American Home Servicing, Inc. (E.D. Cal. 2010) 680 F.Supp.2d 1218, 1224 [finding the Act mirrors the federal counterpart]; Abels v. Bank of America, N.A. (N.D. Cal. 2012) 2012 WL 1980858, at p. *2 [finding “a loan servicer is not a debt collector regulated by the Act”]; Glover v. Fremont Investment and Loan (N.D.Cal. 2009) 2009 WL 5114001, at p. *8 [concluding that a mortgage loan servicer “is not a ‘debt collector’ within the meaning of the debt collection statutes”]; Mannello v. Residential Credit Solutions, Inc. (C.D. Cal. 2016) 2016 WL 94236, at p. *5.)

The Seterus court addressed the split in authority in the federal courts:

In our view, those federal courts that have concluded that section 1788.2’s definition of “debt collector” may include mortgage lenders and mortgage servicers have the better position under an analysis of the actual statutory language. Significantly, a number of the federal courts that have concluded that mortgage lenders and servicers may not be considered to be “debt collectors” under the Rosenthal Act have either not considered the actual language of the Rosenthal Act or have relied on the fact that mortgage lenders and mortgage servicers would not be “debt collectors” under the [federal Fair Debt Collection Practices Act (FDCPA)] in reaching their conclusion regarding the Rosenthal Act. This reasoning is problematic, however, because the FDCPA statutory definition of “debt collector” differs significantly from the definition of “debt collector” provided under the Rosenthal Act; the definition of “debt collector” provided in the Rosenthal Act is far broader than that provided in the FDCPA. The Rosenthal Act does not mirror the FDCPA, and clearly does not do so with respect to the definition of “debt collector.” (Compare § 1788.2, subd. (c) with 15 U.S.C. § 1692a(6).)

(Seterus, 21 Cal.App.5th at 303, citations omitted, italics in original.)

This bill definitively provides that “consumer debt” includes a mortgage debt and makes clear that this is declaratory of existing law. Just as the court in Seterus pointed out, interpreting the Act to include improper collection of mortgage debt “furthers the purpose of the legislation, which is to prohibit entities who are attempting to collect on a debt from ‘engaging in unfair or deceptive acts or practices in the collection of [those] debts.’ (§ 1788.1, subd. (b).)” (Seterus, 21 Cal.App.5th at 297.) The policy rationale for including such debt is that Californians should be protected from abusive and deceptive debt collection practices regardless of whether the purchase was for real or personal property.

The plaintiff in Seterus alleged that the defendant engaged in harassing phone calls at all hours of the day, and threatened to report the plaintiff to credit agencies or to foreclose on the loan even though such actions would have been unlawful. Just as the court pointed out, this “is precisely the type of conduct that the Legislature wanted to protect consumers against when it enacted the Rosenthal Act.” (Seterus, 21 Cal.App.5th at 297-298, citing Senate Committee on Judiciary, Analysis SB 237 (1977–1978 Reg. Sess.) [“This bill would prohibit any person from engaging in certain debt collection practices” including a “list of prohibited threatening, abusive and deceptive practices”]; Assembly Committee on Judiciary, Analysis SB 237 (1977–1978 Reg. Sess.) [“This measure governs all debt collection practices arising from the extension of credit if the credit was obtained primarily for personal, family, or household purposes” and prohibits, among other things, “caus[ing] a telephone to ring repeatedly”].)

2. Intent of the bill

According to the author:

My bill, SB 187, would ensure that people with mortgage debt are given the exact same type of protections and rights as people who have any other type of debt. It is unfortunate that courts have had conflicting rulings on whether or not the definition of “consumer debt” under the California Fair Debt Collection Practices Act includes mortgage debt. Without those protections debt collectors can contact people multiple times a day at any hour and even threaten to foreclose homes despite payments being paid on time. The Act was established by legislators with the purpose to ensure all consumers are protected from harassment and abusive debt collection. My bill makes it clear in statue that people with mortgage debt will be given the same protections and will be treated fairly.

Writing in strong support, the Asian Law Alliance states that the bill “will ensure that mortgage servicers adhere to the Rosenthal Fair Debt Practices Act and will protect consumers with mortgage debts from unwarranted and aggressive harassment from debt collectors.”

3. Removing the exception for attorneys

The Act provides a definition of “debt collector” that specifically provides that it “does not include an attorney or counselor at law.” (Civ. Code § 1788.2 (c).) This bill removes this exception. The author argues that the amendment is needed because there have been numerous cases where attorneys and law firms have been used by banks or mortgage servicers to circumvent the protections given to people by the Act. 

Again, the courts have been split on whether the attorney exception applies similarly to law firms. (Compare Huy Thanh Vo v. Nelson & Kennard (E.D. Cal. 2013) 931 F.Supp.2d 1080, 1094 [finding the “‘attorney’ exemption from the definition of ‘debt collector’ under the Rosenthal Act does not extend to ‘law firms’”] with Green v. Creditor Iustus Remedium, LLP (E.D. Cal. 2013) 2013 U.S. Dist. LEXIS 161298, at *19 [disagreeing with the reasoning in Vo].)

This bill eliminates the exception for both law firms and attorneys. It should be noted that Section 6077.5 of the Business and Professions Code sets out various requirements for attorneys and their employees who are employed “primarily to assist in the collection of a consumer debt owed to another.” Included therein is a requirement that such attorneys and employees are required to comply with the obligations imposed on debt collectors pursuant to the Act. Violations of Section 6077.5 are subject to discipline by the State Bar of California. It is unclear whether any such discipline has been doled out pursuant to this statute.

SUPPORT

Asian Law Alliance

California Low-Income Consumer Coalition

Consumer Attorneys of California

East Bay Community Law Center

Housing and Economic Rights Advocates

Neighborhood Legal Services of Los Angeles County

OPPOSITION

None known

RELATED LEGISLATION

Pending: SB 318 (Hertzberg, 2019), in relevant part, expands the definition of “consumer debt” and “consumer credit” to include money owing from a transaction for services to finance or secure a bail bond or an immigration bond, as defined, for the release of an individual from detention. This bill is currently in the Senate Judiciary Committee.

Prior:

AB 1526 (Kalra, Ch. 247, Stats. 2018) amended the Act to prohibit a debt collector from attempting to collect a time-barred debt without providing specific 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.

AB 2825 (Jones-Sawyer, 2018) would have generally applied 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. The bill died in the Senate Appropriations Committee.

SB 233 (Leno, Ch. 64, Stats. 2013) established the Fair Debt Buying Practices Act.

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