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Bills

SB 908: Debt collectors: licensing and regulation: Debt Collection Licensing Act.

Session Year: 2019-2020
House: Senate
Latest Version Date: 2020-09-25

No summary is available yet.

Date	Status
Sep 25, 2020	Chaptered by Secretary of State. Chapter 163, Statutes of 2020.
Sep 25, 2020	Approved by the Governor.
Sep 10, 2020	Enrolled and presented to the Governor at 3 p.m.
Aug 31, 2020	In Senate. Concurrence in Assembly amendments pending.
Aug 31, 2020	Read third time. Passed. (Ayes 53. Noes 19. Page 5411.) Ordered to the Senate.
Aug 25, 2020	Read second time. Ordered to third reading.
Aug 24, 2020	Read second time and amended. Ordered to second reading.
Aug 20, 2020	From committee: Do pass as amended. (Ayes 13. Noes 5.) (August 20).
Aug 18, 2020	August 18 set for first hearing. Placed on suspense file.
Aug 13, 2020	Read second time and amended. Re-referred to Com. on APPR.
Aug 12, 2020	From committee: Do pass as amended and re-refer to Com. on APPR. (Ayes 9. Noes 3.) (August 12).
Aug 10, 2020	From committee with author's amendments. Read second time and amended. Re-referred to Com. on B. & F.
Jul 27, 2020	July 27 hearing postponed by committee.
Jun 29, 2020	Referred to Com. on B. & F.
Jun 25, 2020	In Assembly. Read first time. Held at Desk.
Jun 25, 2020	Read third time. Passed. (Ayes 29. Noes 4. Page 3863.) Ordered to the Assembly.
Jun 22, 2020	Read second time. Ordered to third reading.
Jun 18, 2020	From committee: Do pass as amended. (Ayes 5. Noes 1. Page 3767.) (June 18).
Jun 18, 2020	June 18 hearing: Reconsideration granted.
Jun 18, 2020	From committee: Do pass as amended. (Ayes 6. Noes 1. Page 3766.) (June 18).
Jun 11, 2020	Set for hearing June 18.
Jun 9, 2020	June 9 hearing: Placed on APPR. suspense file.
Jun 3, 2020	Set for hearing June 9.
May 26, 2020	Read second time and amended. Re-referred to Com. on APPR.
May 22, 2020	From committee: Do pass as amended and re-refer to Com. on APPR. (Ayes 5. Noes 0. Page 3559.) (May 19).
May 12, 2020	Referral to Com. on JUD. rescinded due to the shortened 2020 Legislative Calendar.
May 7, 2020	Set for hearing May 19.
Apr 15, 2020	From committee with author's amendments. Read second time and amended. Re-referred to Com. on B. & F.I.
Mar 18, 2020	April 1 hearing postponed by committee.
Feb 26, 2020	Set for hearing April 1.
Feb 12, 2020	Referred to Coms. on B. & F.I. and JUD.
Feb 4, 2020	From printer. May be acted upon on or after March 5.
Feb 3, 2020	Introduced. Read first time. To Com. on RLS. for assignment. To print.

Date	Description	Location	Votes
Aug 31, 2020	SB 908 Wieckowski Senate Third Reading By Limón	Assembly Floor	53 19 7 Passed
Aug 31, 2020	Unfinished Business SB908 Wieckowski Concurrence	Senate Floor	31 4 5 Passed
Aug 20, 2020	Do pass as amended.	Assembly Standing Committee on Appropriations	13 5 0 Passed
Aug 12, 2020	Do pass as amended and be re-referred to the Committee on [Appropriations]	Assembly Standing Committee on Banking and Finance	9 3 0 Passed
Jun 25, 2020	Senate 3rd Reading SB908 Wieckowski	Senate Floor	29 4 7 Passed
Jun 18, 2020	Do pass as amended	Senate Standing Committee on Appropriations	5 1 0 Passed
Jun 18, 2020	[06-18-2020] set for [First] hearing: Reconsideration of favorable vote granted	Senate Standing Committee on Appropriations	7 0 0 Passed
Jun 18, 2020	Do pass as amended	Senate Standing Committee on Appropriations	6 1 0 Passed
Jun 9, 2020	Placed on suspense file	Senate Standing Committee on Appropriations	7 0 0 Passed
May 19, 2020	Do pass as amended, but first amend, and re-refer to the Committee on [Appropriations]	Senate Standing Committee on Banking and Financial Institutions	5 0 0 Passed

Key

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Against

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SENATE RULES COMMITTEE

Office of Senate Floor Analyses

(916) 651-1520 Fax: (916) 327-4478

SB 908

UNFINISHED BUSINESS

Bill No: SB 908

Author: Wieckowski (D)

Amended: 8/24/20

Vote: 21

SENATE BANKING & F.I. COMMITTEE: 5-0, 5/19/20

AYES: Bradford, Caballero, Durazo, Hueso, Portantino

NO VOTE RECORDED: Chang, Dahle

SENATE APPROPRIATIONS COMMITTEE: 5-1, 6/18/20

AYES: Portantino, Bradford, Hill, Leyva, Wieckowski

NOES: Jones

NO VOTE RECORDED: Bates

SENATE APPROPRIATIONS COMMITTEE: 6-1, 6/18/20

AYES: Portantino, Bates, Bradford, Hill, Leyva, Wieckowski

NOES: Jones

SENATE FLOOR: 29-4, 6/25/20

AYES: Allen, Archuleta, Atkins, Beall, Bradford, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Moorlach, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener

NOES: Jones, Melendez, Morrell, Nielsen

NO VOTE RECORDED: Bates, Borgeas, Caballero, Chang, Dahle, Grove, Wilk

ASSEMBLY FLOOR: Not available

SUBJECT: Debt collectors: licensing and regulation: Debt Collection Licensing Act

SOURCE: Author

DIGEST:

This bill creates a new licensing law applicable to debt collectors and debt buyers, administered by the Department of Business Oversight (DBO), effective January 1, 2022, as specified.

Assembly Amendments

delete references to a required licensee examination frequency, exempt from licensure and from disciplinary action foreclosure trustees and persons subject to the Karnette Rental Purchase Act, establish a Debt Collection Advisory Committee, prohibit local governments from requiring debt collectors to be licensed or registered, and make other technical changes.

ANALYSIS: Existing federal law provides for the Fair Debt Collection Practices Act (FDCPA; Public Law 95-109), codified as 15 U.S.C. Sections 1692 through 1692p, which prohibits debt collectors from engaging in abusive, unfair or deceptive practices to collect debts. Violations of the FDCPA are enforceable through a private right of action or a class action, or through administrative action taken by the Federal Trade Commission or applicable federal banking agencies, including the federal Consumer Financial Protection Bureau.

Existing state law:

Provides for the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act; Civil Code Section 1788 et seq.), California’s state equivalent of the FDCPA. Like the FDCPA, the Rosenthal Act prohibits debt collectors from engaging in specified abusive, unfair, or deceptive practices to collect debts. Violations of the Rosenthal Act are enforceable through a private right of action. A debt collector who violates the Rosenthal Act is liable in an amount equal to the sum of any actual damages sustained by the debtor. A debt collector whose violation is willful and knowing is liable to the debtor for actual damages plus an amount between $100 and $1,000 as determined by the court. Prevailing parties are entitled to reasonable attorney’s fees and costs, as specified (Civil Code Section 1788.30). Additionally, any attempt to collect a consumer debt using a process that gives the appearance of being authorized or approved by a governmental agency is a misdemeanor punishable by imprisonment of up to six months in a county jail or by a fine up to $2,500, or both (Civil Code Section 1788.16).
Provides for the Fair Debt Buying Practices Act (FDBPA; Civil Code Section 1788.50 et seq.), which requires persons that purchase delinquent or charged-off consumer debt to maintain, and provide upon request, specified documentation proving that the alleged debtor is the individual associated with the original contract or agreement, and that the amount of indebtedness is accurate. The FDBPA also requires debt buyers to provide specified disclosures to consumers when attempting to collect debts that are beyond the applicable statute of limitations. Violations of the FDBPA are enforceable through a private right of action or a class action. A debt buyer who violates the FDBPA is liable to the debtor for actual damages, plus statutory damages of between $100 and $1,000 as determined by the court. In the case of a class action, a debt buyer is liable for statutory damages between $100 and $1,000 for each named plaintiff, or, if the court finds that the debt buyer engaged in a pattern and practice of violating the FDBPA, the court may award actual damages to the class in an amount not to exceed the lesser of $500,000 or 1% of the debt buyer’s net worth. Prevailing parties are entitled to reasonable attorney’s fees and costs, as specified. Recovery in an action brought under the Rosenthal Act or the Federal FDCPA precludes recovery for the same action under the FDBPA (Civil Code Section 1788.62).

This bill:

Adds a new Division 25 to the Financial Code, titled “Debt Collection Licensing Act” (DCLA), effective January 1, 2022, which requires the licensure of persons who engage in the business of debt collection in this state and is administered by DBO. The DCLA:
1. Defines “debt collector” using identical language as the Rosenthal Act and provides that a person who meets the definition of “debt buyer” in the FDBPA is considered a debt collector for purposes of the licensing law. Provides that a debt collector is operating in this state if they are located in this state and are seeking to collect from a debtor that resides inside or outside the state or if they are located outside this state and are seeking to collect from a debtor that resides in this state.
2. Defines the terms “consumer credit transaction,” “creditor,” “debt,” “debt collection,” and “person” as those terms are defined in the Rosenthal Act.
3. Defines the terms “consumer debt” and “consumer credit” as those terms are defined in the Rosenthal Act and provides that the term “consumer debt” includes “charged-off consumer debt,” as that term is defined in the FDBPA.
4. Defines “California debtor accounts”, a term that is not defined in the Rosenthal Act or the FDBPA, as accounts that are owned by consumers who reside in California at the time the consumer makes a payment on the account.
5. Requires licensees to comply with the Rosenthal Act and the FDBPA and provides that a violation of the Rosenthal Act or the FDBPA constitutes a violation of the DCLA.
6. Provides powers to the commissioner similar to those in other Financial Code licensing laws administered by the commissioner, including rulemaking authority; authority to prescribe the content of the licensing application and require applicants to apply through the Nationwide Multistate Licensing System & Registry; authority to revoke a license; investigation and examination authority; and limited enforcement authority, which includes desist and refrain authority, the ability to order ancillary relief, and the ability to suspend or revoke a license.
7. Requires applicants for licensure to submit to a background check, as specified, pay specified application fees, and provide information requested by the commissioner.
8. Requires licensees to pay annual license fees, as specified; notify the commissioner regarding any changes that result in the information in their applications becoming inaccurate or incomplete and notify the commissioner regarding any changes in their places of business; develop policies and procedures reasonably intended to promote compliance with the DCLA; file annual and special reports and submit to requests for information as required by the commissioner; maintain surety bonds of at least $25,000; and submit to examinations by the commissioner at least once every five years, as specified.
9. Provides exemptions from licensure under the DCLA to depository institutions chartered under state or federal law, California Financing Law licensees, California Residential Mortgage Lending Act licensees, Real Estate Law licensees, foreclosure trustees, and persons subject to the Karnette Rental-Purchase Act.
10. Notwithstanding the exemptions described immediately above, allows the DBO commissioner to issue desist and refrain orders to depository institutions chartered under state or federal law, California Financing Law licensees, California Residential Mortgage Lending Act licensees, and Real Estate Law licensees for violations of the Rosenthal Act or the FDBPA, and allows the commissioner to order any of these entities to pay ancillary relief in connection with Rosenthal Act or FDBPA violations.
11. Authorizes the commissioner to issue a desist and refrain order to and to order the payment of ancillary relief by a person engaged in business as a debt collector without a license from the commissioner.
12. Establishes a seven-member Debt Collection Advisory Committee to advise the commissioner on matters relating to debt collection or the debt collection business, as specified.
13. Prohibits local governments from requiring debt collectors to be licensed or registered as debt collectors.
Amends the Rosenthal Act and the FDBPA to require debt collectors and debt buyers to include their license numbers on their written communications.

Background

This bill is sponsored by the author to ensure greater consumer protection through enhanced oversight over debt collectors and debt buyers operating in the state. In citing the need for this bill, the author’s office observes that California is in the minority of states that currently fail to license debt collectors, along with Georgia, Kentucky, Mississippi, Missouri, Montana, New York, Oklahoma, South Carolina, Vermont, and Virginia. Most of the states that require licensing also have their own state-level fair debt collection laws with enforcement provisions; thus, other states impose licensing laws in addition to, not in lieu of fair debt collection laws.

Finally, the author’s office observes that the debt collection and debt buying industries are notoriously unscrupulous in their practices. Despite federal and state Fair Debt Collection Practices Acts, collection practices consistently remain a top consumer complaint. From July 2011 to March 2018, the federal Consumer Financial Protection Bureau received just over 400,000 debt collection complaints, representing nearly one-third of all complaints received. The most common concerns identified by consumers were attempts to collect a debt not owed (39%), written notification about debt (17%), and communication tactics (17%). The author notes that, while the California Attorney General (AG) can accept consumer complaints about debt collection and debt buying practices and does pursue major, widespread violations of the law, the AG cannot engage on every complaint filed or take enforcement action on every alleged violation. It is also unreasonable to expect individual consumers to bring their own actions for violations of the Rosenthal Act or the FDBPA, because very few attorneys will take small-dollar cases, and most consumers do not know what protections the laws afford them.

Comments

This bill uses the two existing state laws applicable to debt collectors and debt buyers as its foundation. With only minor exceptions, this bill does not add any new requirements on debt collectors or debt buyers; instead, it adds a layer of regulatory oversight over debt collectors and debt buyers already subject to state law, but not currently subject to licensure. The author’s logic is that by layering a licensing and examination framework over existing state law requirements, the state will be better able to ensure that debt collectors and debt buyers comply with existing law.

Although this bill bears many similarities to many of the Financial Code licensing laws already administered by DBO, it does contain one significant difference: more limited administrative enforcement authority. Recognizing that the Rosenthal Act and the FDBPA already authorize private rights of action for violations of these acts, SB 908 contains a limited set of administrative remedies, including desist and refrain authority, the ability to order ancillary relief, and the ability to suspend and revoke licenses. Lack of civil and administrative penalty authority and citation and fine authority in SB 908 is intended to prevent situations where a licensee could be subject to both a lawsuit by a debtor and to an administrative or civil action brought by DBO for the same violation.

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

According to the Assembly Appropriations Committee, this bill will result in one-time General Fund and special fund costs in the millions of dollars to DBO to license debt collectors and oversee the new program. There is some cost uncertainty, because the precise number of debt collectors operating in California is unknown. However, DBO will likely need to license between 3,000 and 7,000 entities, generating significant costs for DBO possibly in excess of $10 million each year. This program will eventually be self-funded through license fees and assessments. However, DBO would likely need General Fund support during the first years of implementation.

SUPPORT: (Verified 8/28/20)

Bay Area Legal Aid

Bet Tzedek

California Advocates for Nursing Home Reform

California Association of Collectors

California Attorneys for Criminal Justice

California Indian Legal Services

California Low-Income Consumer Coalition

Center for Responsible Lending

Consumer Federation of California

Consumer Reports

Consumers for Auto Reliability and Safety

Courage California

East Bay Community Law Center

Legal Aid Association of California

Public Law Center

Receivables Management Association International

Western Center on Law and Poverty

OPPOSITION: (Verified 8/28/20)

California Association of Licensed Investigators

California Bankers Association

California Credit Union League

California Creditors Bar Association

ARGUMENTS IN SUPPORT: Several supporters, including the California Low-Income Consumer Coalition, Consumers for Auto Reliability and Safety, Public Law Center, Bet Tzedek, Bay Area Legal Aid, and others write that the oversight and enforcement authority in SB 908 “is long overdue and badly needed. While California has had laws on the books requiring fair debt collection practices since 1977, our laws do little to stem the bad behavior they prohibit. This is because the law requires the consumer to sue the debt collection company...Because the state has no oversight or licensing requirements, the industry can largely behave as it wishes. California has no idea how many debt collectors operate within the state, the sheer volume of debt they are collecting from Californians, or what qualifications these companies are requiring of their employees who manage thousands of accounts and thus impact the lives of thousands of Californians. SB 908 will add California to the list of the thirty-four other states that require a license in order to collect on a consumer debt.”

ARGUMENTS IN OPPOSITION: The California Creditors Bar Association writes, “Members of the California Creditors Bar Association represent clients to collect a wide array of lawful obligations, including debts generated by defaults in contract obligations, consumer contracts, mortgage transactions, child support, and much more...Regulations of the State Bar already expressly require compliance with California’s Rosenthal Fair Debt Collection Practices Act, and violations by lawyers constitute grounds for disbarment....There is no public policy justification for subjecting lawyers to duplicative licensing by the Department of Business Oversight....A second license for precisely the same representation of clients is unnecessary, redundant, and will raise costs to clients.”

The California Bankers Association and California Credit Union League, which are exempted from licensure under SB 908, but subject to enforcement authority of DBO for violations of the Rosenthal Act and FDBPA, argue that the bill “creates a triplicate enforcement authority for our member institutions and does not take into account the robust and regulatory regimes that our member financial institutions already abide by.”Click here to enter text.

Prepared by: Eileen Newhall / B. & F.I. /

8/31/20 18:01:57

**** END ****

SENATE THIRD READING

STR Bill Id:SB 908

Author:(Wieckowski)

As Amended Ver:August 24, 2020

Majority vote

SUMMARY:

Establishes a licensing law for debt collectors and debt buyers to be administered by the Department of Business Oversight.

Major Provisions

Adds a new Division 25 to the Financial Code, titled "Debt Collection Licensing Act" (DCLA), effective January 1, 2022, which requires the licensure of persons who engage in the business of debt collection in this state and is administered by the Department of Business Oversight (DBO). The DCLA:
1. Defines "debt collector" using identical language as the Rosenthal Act and provides that a person who meets the definition of "debt buyer" in the Fair Debt Buying Practices Act (FDBPA) is considered a debt collector for purposes of the licensing law.
2. Requires licensees to comply with the Rosenthal Act and the FDBPA and provides that a violation of the Rosenthal Act or the FDBPA constitutes a violation of the DCLA.
3. Provides exemptions from licensure under the DCLA to depository institutions chartered under state or federal law, California Financing Law licensees, California Residential Mortgage Lending Act licensees, persons subject to the Karnette Rental-Purchase Act (commonly known as rent-to-own stores), and Real Estate Law licensees, but allows the DBO commissioner to issue desist and refrain orders to any of these entities that violate the Rosenthal Act or the FDBPA and to order any of these entities to pay ancillary relief in connection with Rosenthal Act or FDBPA violations.
4. Provides powers to the Commissioner of Business Oversight similar to those in other Financial Code licensing laws administered by DBO, including rulemaking authority; authority to prescribe the content of the licensing application and require applicants to apply through the Nationwide Multistate Licensing System & Registry; investigation and examination authority; and limited enforcement authority, which includes desist and refrain authority, the ability to order ancillary relief, and the ability to suspend or revoke a license.
5. Requires applicants for licensure to submit to a background check, as specified, pay specified application fees, and provide information requested by the commissioner.
6. Requires licensees to pay annual license fees, as specified; notify the commissioner regarding any changes that result in the information in their applications becoming inaccurate or incomplete and notify the commissioner regarding any changes in their places of business; develop policies and procedures reasonably intended to promote compliance with the DCLA; file annual and special reports and submit to requests for information as required by the commissioner; maintain surety bonds of at least $25,000; and submit to examinations by the commissioner.

COMMENTS:

Debt collection practices consistently remain a top complaint from consumers. From July 2011 to March of 2018, the Consumer Financial Protection Bureau (CFPB) received approximately 400,500 debt collection complaints, representing 27% of the total complaints received. Additionally, a large number of Californians likely interact with debt collectors, and such interactions are often related to non-financial debt. According to the CFPB, more than 25% of American consumers with a credit report had at least one third-party collections tradeline on their file in 2018, and 75% of third-party collections tradelines are for non-financial debt, primarily related to medical debt

Illegal debt collection practices harm consumers financial health in several ways. Most obviously, a consumer who is decieved into paying an amount not owed endures a direct negative hit to their savings or cash flow that displaces opportunities to spend on goods and services. The consumer may also be harmed by erroneous reports by debt collectors that harm their credit score. Many consumers pursued by debt collectors experience stress that can create or exacerbate physical and mental health challenges.^[1]

Existing state and federal laws generally prohibit debt collectors from abusive, unfair, and deceptive practices, but the volume and nature of complaints filed by consumers with the CFPB suggests that compliance with the laws is not uniform across the debt collection industry. Large cases may attract the attention of state or federal law enforcement. In 2015, California Attorney General Kamala Harris settled a case against JP Morgan Chase for committing credit card debt collection abuses against tens of thousands Californians, including collecting debts not owed and improperly obtaining judgments against military servicermembers. Federal regulators, like the CFPB, will also bring cases, but recent cases settled by the Trump-appointed CFPB directors have resulted in no restitution for consumers despite findings of consumer harm.^[2]

Licensing laws are the primary mechanism that states use to supervise and regulate providers of financial services and products. In California, the Department of Business Oversight (DBO) is charged with administering licensing laws that cover a variety of businesses, including banks, credit unions, money transmitters, finance lenders and brokers, student loan servicers, and payday lenders. While the details of each licensing law differ, the laws generally provide DBO with the authority to establish minimum requirements for receiving a license, establish requirements and prohibitions that a licensee must comply with, authorize DBO to examine a licensee for compliance, and authorize DBO to take enforcement actions when a violation is discovered.

California is one of sixteen states that do not license debt collectors, and many of the 34 states that license debt collectors also have their own fair debt collection laws. In these cases, a licensing law is not a substitute for a fair debt collection law, but rather a complement that helps the state to better protect consumers by providing additional tools to improve compliance with fair debt collection laws.

This bill uses the definitions and established law regarding fair debt collection practices in the Rosenthal Act and the Fair Debt Buyers Practices Act as a foundation for the licensing law. By leveraging the provisions of existing law, this bill avoids duplicative or contradictory requirements for debt collection activities. The bill does not establish substantive new restrictions or requirements on debt collection practices, but instead focuses on the administrative requirements for seeking a license, This approach should lighten the compliance burden on debt collectors as these entities were already required to comply with these state laws.

According to the Author:

Americans held more than $13 trillion in debt even before the COVID 19 outbreak and wages were not keeping up with the cost of living. As unemployment soars, families will be forced to make agonizing decisions which will undoubtedly include burdening themselves with more debt, SB 908 is needed to ensure existing debt collection law is followed because without it, bad actors will seize the opportunity to prey on desperate and vulnerable Californians

Arguments in Support:

The California Association of Collectors and the Receivables Management Association International, two large trade associations representing the interests of debt collectors, write in support of the bill. The associations state that the author worked with industry participants to craft a licensing system that will protect consumers, while being workable for the regulated industry.

Arguments in Opposition:

The California Creditors Bar Association opposes the bill unless it is amended to exempt attorneys from the licensure requirement in the same manner provided to banks, mortgage banks, and real estate brokers.

FISCAL COMMENTS:

According to the Assembly Appropriations Committee:

One-time General Fund and special fund costs in the millions of dollars to the Department of Business Oversight (DBO) to license debt collectors and oversee the new program. There is some cost uncertainty because the precise number of debt collectors operating in California is unknown. However, DBO will likely need to license between 3,000 and 7,000 entities, generating significant costs for DBO possibly in excess of $10 million each year. This program will eventually be self-funded through license fees and assessments. However, DBO would likely need General Fund support during the first years of implementation.

VOTES:

SENATE FLOOR: 29-4-7

YES: Allen, Archuleta, Atkins, Beall, Bradford, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Moorlach, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener

NO: Jones, Melendez, Morrell, Nielsen

ABS, ABST OR NV: Bates, Borgeas, Caballero, Chang, Dahle, Grove, Wilk

ASM BANKING AND FINANCE: 9-3-0

YES: Limón, Bauer-Kahan, Burke, Berman, Gabriel, Grayson, Mark Stone, Weber, Luz Rivas

NO: Chen, Voepel, Fong

ASM APPROPRIATIONS: 13-5-0

YES: Gonzalez, Bauer-Kahan, Bloom, Bonta, Calderon, Carrillo, Chau, Eggman, Gabriel, Eduardo Garcia, Petrie-Norris, Quirk, Robert Rivas

NO: Bigelow, Megan Dahle, Diep, Fong, Voepel

UPDATED:

VERSION: August 24, 2020

CONSULTANT: Michael Burdick / B. & F. / (916) 319-3081 FN: 0003246

Date of Hearing: August 18, 2020

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

SBPCA Bill Id:SB 908

Author:(Wieckowski) – As Amended Ver:August 10, 2020

Policy Committee:	Banking and Finance	Vote:	9 - 3

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill establishes a program within the Department of Business Oversight (DBO) to license and oversee debt collectors and debt buyers operating in California. Specifically, this bill:

Requires a debt collector and debt buyer, as defined, to obtain a license before operating in California and requires a debt collector and debt buyer to comply with the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) and the Fair Debt Buying Practices Act (FDBPA).
Authorizes the commissioner to issue a desist and refrain order to and to order the payment of ancillary relief from a debt collector operating without a license.
Requires DBO to examine a licensee for compliance as often as DBO deems necessary and appropriate.
Requires a licensee to pay an annual license fee, file an annual report, maintain a surety bond of at least $25,000 and submit to DBO examinations.
Exempts from this bill’s licensure requirements a depository institution chartered under state or federal law, California Financing Law licensees, California Residential Mortgage Lending Act licensees, rent-to-own stores, and Real Estate Law licensees. DBO may issue a desist and refrain order to any of these entities that violate the Rosenthal Act or FDBPA and order them to pay ancillary relief for violations of the acts.
Creates a Debt Collection Advisory Committee within DBO to advise the commissioner on matters related to debt collection.

FISCAL EFFECT:

COMMENTS:

The Rosenthal Act. The Legislature passed the Rosenthal Act in 1977 to place reasonable limits on the kinds of activities that creditors and debt collectors can employ when collecting payments. The Rosenthal Act prohibits deceptive, dishonest, unfair and unreasonable debt collection practices, and many of the law’s provisions govern how debt collectors can interact and communicate with consumers. The law also provides a private right of action for harmed consumers, though supporters of this bill contend that consumers rarely use this option because of the costs associated with legal action.
The FDBPA. The Legislature passed The FDBPA in 2013 to provide protections to consumers whose debts were sold to a debt buyer. The FDPA requires a person who buys delinquent or charged-off consumer debt to maintain certain documentation and require a debt buyer to provide disclosures to consumers when the buyer attempts to collect debts that are beyond the applicable statute of limitations.
Ongoing concerns with debt collectors. As the Assembly Banking Committee notes in its analysis, complaints about debt collection agencies persist. Between July 2011 and March 2019, the Consumer Financial Protection Bureau (CFPB) received 400,500 debt collection complaints, representing 27% of all the complaints received. Consumers reported issues around communication tactics and attempts to collect a debt that was not actually owed.
Purpose. According to the author, SB 908 will help ensure that debt collectors follow existing law. The Legal Aid Association of California (LAAC) argues this bill provides important and long overdue enforcement authority over these companies, noting that existing laws do little to stem bad behavior because the law requires the consumer to file a lawsuit against the company even though “most consumers do not have the means to vindicate their rights under the law.”
Other support. The California Association of Collectors and the Receivables Management Association International, two associations representing debt collectors, write in support of the bill.
Budget proposal. The Governor’s 2020-21 budget proposed to rename DBO as the Department of Financial Protection and Innovation (DFPI) and to authorize DFPI to carry out new consumer protection responsibilities and activities. Under the proposal, DFPI would have broad authority to investigate and take enforcement actions (such as assess penalties) against “covered entities” for unfair, deceptive, or abusive acts. DFPI’s authority would apply to entities providing financial products or services to California consumers who are not registered with, or licensed by, DBO or another state department. While the DFPI proposal was not included in the final budget agreement, AB 89 (Assembly Budget Committee), Chapter 7, Statutes of 2020, included provisional language that authorizes the Department of Finance (DOF) to augment the budget if the DFPI proposal becomes law.

Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081

Date of Hearing: August 12, 2020

ASSEMBLY COMMITTEE ON BANKING AND FINANCE

Monique Limón, Chair

SBPCA Bill Id:SB 908

Author:(Wieckowski) – As Amended Ver:August 10, 2020

SENATE VOTE: 29-4

SUBJECT: Debt collectors: licensing and regulation: Debt Collection Licensing Act

SUMMARY: Establishes a licensing law for debt collectors and debt buyers to be administered by the Department of Business Oversight.

Specifically, this bill:

Adds a new Division 24 to the Financial Code, titled “Debt Collection Licensing Act” (DCLA), effective January 1, 2022, which requires the licensure of persons who engage in the business of debt collection in this state and is administered by the Department of Business Oversight (DBO). The DCLA:
1. Defines “debt collector” using identical language as the Rosenthal Act and provides that a person who meets the definition of “debt buyer” in the FDBPA is considered a debt collector for purposes of the licensing law. Provides that a debt collector is operating in this state if they are located in this state and are seeking to collect from a debtor that resides inside or outside the state or if they are located outside this state and are seeking to collect from a debtor that resides in this state.
2. Defines the terms “consumer credit transaction,” “creditor,” “debt,” “debt collection,” and “person” as those terms are defined in the Rosenthal Act.
3. Defines the terms “consumer debt” and “consumer credit” as those terms are defined in the Rosenthal Act and provides that the term “consumer debt” includes “charged-off consumer debt,” as that term is defined in the FDBPA.
4. Requires licensees to comply with the Rosenthal Act and the FDBPA and provides that a violation of the Rosenthal Act or the FDBPA constitutes a violation of the DCLA.
5. Provides exemptions from licensure under the DCLA to depository institutions chartered under state or federal law, California Financing Law licensees, California Residential Mortgage Lending Act licensees, persons subject to the Karnette Rental-Purchase Act (commonly known as rent-to-own stores), and Real Estate Law licensees, but allows the DBO commissioner to issue desist and refrain orders to any of these entities that violate the Rosenthal Act or the FDBPA and to order any of these entities to pay ancillary relief in connection with Rosenthal Act or FDBPA violations.
6. Provides powers to the Commissioner of Business Oversight similar to those in other Financial Code licensing laws administered by DBO, including rulemaking authority; authority to prescribe the content of the licensing application and require applicants to apply through the Nationwide Multistate Licensing System & Registry; investigation and examination authority; and limited enforcement authority, which includes desist and refrain authority, the ability to order ancillary relief, and the ability to suspend or revoke a license.
7. Requires applicants for licensure to submit to a background check, as specified, pay specified application fees, and provide information requested by the commissioner.
8. Requires licensees to pay annual license fees, as specified; notify the commissioner regarding any changes that result in the information in their applications becoming inaccurate or incomplete and notify the commissioner regarding any changes in their places of business; develop policies and procedures reasonably intended to promote compliance with the DCLA; file annual and special reports and submit to requests for information as required by the commissioner; maintain surety bonds of at least $25,000; and submit to examinations by the commissioner.
9. Authorizes the commissioner to issue a desist and refrain order and to order the payment of ancillary relief by a person engaged in business as a debt collector without a license from the commissioner.
10. Creates a Debt Collection Advisory Committee within DBO to advise the commissioner on matters related to debt collection.
Amends the Rosenthal Act and the FDBPA to require debt collectors and debt buyers to include their license numbers on their written communications.

EXISTING LAW:

Regulates the collection of consumer debt under the Rosenthal Fair Debt Collections Practices Act (“Rosenthal 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.)
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)
Regulates the collection of consumer debt by a debt buyer, including requirements for debt buyers to have specified evidence of the origin, balance, payment history, and ownership history of a charged off consumer debt and to provide this evidence to a debtor upon request. (Title 1.6C.5 of Part 4 of Division 3 of the Civil Code, Section 1788.50 et seq.)
The federal Fair Debt Collection Practices Act prohibits debt collectors from using abusive, unfair, or deceptive practices. (15 USC Section 1692 et seq.)

FISCAL EFFECT:

According to the Senate Appropriations Committee, this bill will result in unknown, potentially significant costs to DBO to develop regulations for the oversight of debt collectors and implement the examination requirements and enforcement provisions of this bill. Fees and assessments from applicants and licensees may offset ongoing enforcement and administration costs to DBO.

COMMENTS:

PURPOSE

This bill is sponsored by the author. According to the author:

DEBT COLLECTION IS A PREVALENT SOURCE OF CONSUMER COMPLAINTS

Debt collection practices consistently remain a top complaint from consumers. From July 2011 to March of 2018, the Consumer Financial Protection Bureau (CFPB) received approximately 400,500 debt collection complaints, representing 27 percent of the total complaints received, exceeded only by complaints related to consumer credit reporting. The most common concerns identified by consumers were attempts to collect a debt not owed (39 percent), written notification about debt (17 percent), and communication tactics (17 percent).^[1]

A large number of Californians likely interact with debt collectors, and such interactions are often related to non-financial debt. According to a 2018 report published by the CFPB, more than one-in-four consumers (28 percent) with a credit report in a nationally representative sample of consumer credit files had at least one third-party collections tradeline on their file in 2018. The study also found that more than three-out-of-four third-party collections tradelines are for non-financial debt. More than half (58 percent) of these tradelines are for medical debt and another 20 percent for telecommunications or utilities debt.

EXISTING LAWS ARE SPORADICALLY ENFORCED

The state Rosenthal Act provides a private right of action for harmed consumers, but the available remedies may be insufficient to incentivize attorneys to take on cases. The Public Law Center (PLC) is a non-profit legal servicers organization that serves low-income clients in Orange County. Writing in support of the bill, PLC notes the following:

While California has had laws on the books requiring fair debt collection practices since 1977, our laws do little to stem the bad behavior they prohibit. This is because the law requires the consumer to sue the debt collection company. In other words, a consumer who has been harassed, threatened, misled, ripped off, or wrongfully accused of owing a debt, must seek to enforce the law herself.

Most consumers do not have the means to vindicate their rights under the law. Even for the few who could afford a lawyer, it isn’t financially worth the time and cost it takes to bring a lawsuit against a collection agency who violated their consumer rights by collecting against the wrong person, attempting to collect on a debt already paid, inflating the amount of money owed, or misrepresenting why they were repeatedly calling. So consumers never bother to sue or they give up.

LICENSING LAWS PROVIDE OPPORTUNITY FOR STRONGER STATE OVERSIGHT

HOW THIS BILL AFFECTS ENTITIES LICENSED UNDER OTHER LAWS

Several types of businesses that are licensed by DBO pursuant to other laws have expressed opposition or concerns related to the provisions of this bill. In response to these requests, the author has amended the bill in a manner that maintains the primary intent of the bill – to ensure existing debt collection law is followed – but has removed duplicative licensure requirements for existing licensees of DBO. Pursuant to that amendment, banks, credit unions, finance lenders, residential mortgage lenders, and residential mortgage loan servicers are not required to be licensed as debt collectors. Under current law, these entities are already required to comply with the Rosenthal Act, and this bill would authorize DBO to take enforcement action against its licensees if DBO discovers a violation of Rosenthal. Providing enforcement authority to DBO will alleviate the burden on consumers to bring private actions for alleged violations, while maintaining due process rights for licensees who may contest administrative actions by DBO through the judicial system.

Two types of businesses licensed by other regulators have also raised concerns about the bill. Private investigators and attorneys who collect debts point out that they are required to be licensed by the Bureau of Security and Investigative Services and the State Bar, respectively. Neither regulator, however, has authority to provide a remedy to a consumer harmed by a violation of the Rosenthal Act, nor does either regulator routinely examine licensees for compliance with Rosenthal. Enforcement and examination authority are key tenets of this bill, and exempting attorneys or private investigators would create gaps in DBO’s oversight of the debt collection industry.

TECHNICAL AMENDMENTS

On page 12, line 38: strike “any” and replace with “all”

On page 18, line 14: strike “any” and replace with “a”

ARGUMENTS IN SUPPORT

Consumer advocacy organizations and non-profit legal services providers cite national data suggesting debt collectors pose a potential threat to consumers and argue that stronger state oversight will reduce the incidence of noncompliance with fair debt collection practices laws. The East Bay Community Law Center provides multiple examples of illegal debt collection practices by attorneys and financial institutions, which demonstrates that the oversight envisioned by this bill is appropriate for those entities. The Center for Responsible Lending also urges that the bill cover attorneys, as “many collection firms have weaponized the court system to harass consumers and operate as lawsuit mills filing thousands of collection lawsuits a year, often without proper review of original account documentation.”

ARGUMENTS IN OPPOSITION

Banks and credit unions oppose the bill unless it is amended to completely exempt them from its provisions. Although the author has exempted banks and credit unions from the licensure requirement, the bill authorizes DBO to bring enforcement actions against such entities for violating existing fair debt collection laws to which they are already subject. The California Bankers Association raises a federal preemption argument citing a recent bulletin from the Office of the Comptroller of the Currency (OCC) that contains contestable claims related to the reach of federal preemption; however, state laws related to “rights to collect debts” are explicitly not preempted by federal law as recognized by the very same OCC as promulgated in its own regulations (see 12 CFR § 7.4008 (e)).

REGISTERED SUPPORT / OPPOSITION:

Support

Bay Area Legal Aid
Bet Tzedek Legal Services
California Association of Collectors, Inc
California Attorneys for Criminal Justice
California Indian Legal Services
California Low-income Consumer Coalition
CANHR
Center for Responsible Lending
Consumer Federation of California
Consumer Reports
Consumers for Auto Reliability & Safety
Courage California
East Bay Community Law Center
Legal Aid Association of California
Public Law Center
Receivables Management Association International
Western Center on Law & Poverty

Oppose Unless Amended

California Association of Licensed Investigators
California Bankers Association
California Credit Union League
California Creditors Bar Association

Analysis Prepared by: Michael Burdick / B. & F. / (916) 319-3081

SENATE RULES COMMITTEE

Office of Senate Floor Analyses

(916) 651-1520 Fax: (916) 327-4478

SB 908

THIRD READING

Bill No: SB 908

Author: Wieckowski (D)

Amended: 6/18/20

Vote: 21

SENATE BANKING & F.I. COMMITTEE: 5-0, 5/19/20

AYES: Bradford, Caballero, Durazo, Hueso, Portantino

NO VOTE RECORDED: Chang, Dahle

SENATE APPROPRIATIONS COMMITTEE: 5-1, 6/18/20

AYES: Portantino, Bradford, Hill, Leyva, Wieckowski

NOES: Jones

NO VOTE RECORDED: Bates

SUBJECT: Debt collectors: licensing and regulation: Debt Collection Licensing Act.

SOURCE: Author

DIGEST:

This bill creates a new licensing law applicable to debt collectors and debt buyers, administered by the Department of Business Oversight (DBO), as specified.

Existing state law:

Provides for the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act; Civil Code Section 1788 et seq.), California’s state equivalent of the FDCPA. Like the FDCPA, the Rosenthal Act prohibits debt collectors from engaging in specified abusive, unfair, or deceptive practices to collect debts. Violations of the Rosenthal Act are enforceable through a private right of action. A debt collector who violates the Rosenthal Act is liable in an amount equal to the sum of any actual damages sustained by the debtor. A debt collector whose violation is willful and knowing is liable to the debtor for actual damages plus an amount between $100 and $1,000 as determined by the court. Prevailing parties are entitled to reasonable attorney’s fees and costs, as specified (Civil Code Section 1788.30). Additionally, any attempt to collect a consumer debt using a process that gives the appearance of being authorized or approved by a governmental agency is a misdemeanor punishable by imprisonment of up to six months in a county jail or by a fine up to $2,500, or both (Civil Code Section 1788.16).
Provides for the Fair Debt Buying Practices Act (FDBPA; Civil Code Section 1788.50 et seq.), which requires persons that purchase delinquent or charged-off consumer debt to maintain, and provide upon request, specified documentation proving that the alleged debtor is the individual associated with the original contract or agreement, and that the amount of indebtedness is accurate. The FDBPA also requires debt buyers to provide specified disclosures to consumers when attempting to collect debts that are beyond the applicable statute of limitations. Violations of the FDBPA are enforceable through a private right of action or a class action. A debt buyer who violates the FDBPA is liable to the debtor for actual damages, plus statutory damages of between $100 and $1,000 as determined by the court. In the case of a class action, a debt buyer is liable for statutory damages between $100 and $1,000 for each named plaintiff, or, if the court finds that the debt buyer engaged in a pattern and practice of violating the FDBPA, the court may award actual damages to the class in an amount not to exceed the lesser of $500,000 or 1% of the debt buyer’s net worth. Prevailing parties are entitled to reasonable attorney’s fees and costs, as specified. Recovery in an action brought under the Rosenthal Act or the Federal FDCPA precludes recovery for the same action under the FDBPA (Civil Code Section 1788.62).

This bill:

Adds a new Division 24 to the Financial Code, titled “Debt Collection Licensing Act” (DCLA), effective January 1, 2022, which requires the licensure of persons who engage in the business of debt collection in this state and is administered by DBO. The DCLA:
1. Defines “debt collector” using identical language as the Rosenthal Act and provides that a person who meets the definition of “debt buyer” in the FDBPA is considered a debt collector for purposes of the licensing law. Provides that a debt collector is operating in this state if they are located in this state and are seeking to collect from a debtor that resides inside or outside the state or if they are located outside this state and are seeking to collect from a debtor that resides in this state.
2. Defines the terms “consumer credit transaction,” “creditor,” “debt,” “debt collection,” and “person” as those terms are defined in the Rosenthal Act.
3. Defines the terms “consumer debt” and “consumer credit” as those terms are defined in the Rosenthal Act and provides that the term “consumer debt” includes “charged-off consumer debt,” as that term is defined in the FDBPA.
4. Requires licensees to comply with the Rosenthal Act and the FDBPA and provides that a violation of the Rosenthal Act or the FDBPA constitutes a violation of the DCLA.
5. Provides powers to the commissioner similar to those in other Financial Code licensing laws administered by the commissioner, including rulemaking authority; authority to prescribe the content of the licensing application and require applicants to apply through the Nationwide Multistate Licensing System & Registry; investigation and examination authority; and limited enforcement authority, which includes desist and refrain authority, the ability to order ancillary relief, and the ability to suspend or revoke a license.
6. Requires applicants for licensure to submit to a background check, as specified, pay specified application fees, and provide information requested by the commissioner.
7. Requires licensees to pay annual license fees, as specified; notify the commissioner regarding any changes that result in the information in their applications becoming inaccurate or incomplete and notify the commissioner regarding any changes in their places of business; develop policies and procedures reasonably intended to promote compliance with the DCLA; file annual and special reports and submit to requests for information as required by the commissioner; maintain surety bonds of at least $25,000; and submit to examinations by the commissioner at least once every five years, as specified.
8. Provides exemptions from licensure under the DCLA to depository institutions chartered under state or federal law, California Financing Law licensees, California Residential Mortgage Lending Act licensees, and Real Estate Law licensees, but allows the DBO commissioner to issue desist and refrain orders to any of these entities that violate the Rosenthal Act or the FDBPA and to order any of these entities to pay ancillary relief in connection with Rosenthal Act or FDBPA violations.
9. Authorizes the commissioner to issue a desist and refrain order to and to order the payment of ancillary relief by a person engaged in business as a debt collector without a license from the commissioner.
Amends the Rosenthal Act and the FDBPA to require debt collectors and debt buyers to include their license numbers on their written communications.

Background

Comments

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

SUPPORT: (Verified 6/18/20)

Bay Area Legal Aid

Bet Tzedek

California Advocates for Nursing Home Reform

California Indian Legal Services

California Low-Income Consumer Coalition

Center for Responsible Lending

Consumer Federation of California

Consumer Reports

Consumers for Auto Reliability and Safety

Courage California

East Bay Community Law Center

Legal Aid Association of California

Public Law Center

Western Center on Law and Poverty

OPPOSITION: (Verified 6/18/20)

California Bankers Association

California Credit Union League

California Creditors Bar Association

United Trustees Association

Prepared by: Eileen Newhall / B. & F.I. / (916) 651-4110

6/23/20 17:13:36

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

SB 908 (Wieckowski) - Debt collectors: licensing and regulation: Debt Collection Licensing Act


Version: May 26, 2020	Policy Vote: B. & F.I. 5 - 0
Urgency: No	Mandate: Yes
Hearing Date: June 9, 2020	Consultant: Janelle Miyashiro

Bill Summary:

SB 908 would create the “Debt Collection Licensing Act” which would establish a new licensing law applicable to debt collectors and debt buyers, as specified, administered by the Department of Business Oversight (DBO).

Fiscal Impact:

Unknown, potentially significant costs to DBO to develop regulations for the oversight of debt collectors and implement the examination requirements and enforcement provisions of this bill. Fees and assessments from applicants and licensees may offset ongoing enforcement and administration costs to DBO.

Background:

The Rosenthal Fair Debt Collections Practices Act (Rosenthal Act) governs the collection of consumer debt in California. The Rosenthal Act prohibits deceptive, dishonest, unfair, and unreasonable debt collection practices by debt collectors and additional regulates the form and context of debt collector communications.

Proposed Law:

This bill:

Establishes the Debt Collection Licensing Act (Act) and, commencing January 1, 2021, requires the Commissioner of DBO to take all actions necessary to prepare to be able, commencing January 1, 2022, to fully enforce the licensing and regulatory provisions of the Act. Additionally requires the Commissioner to allow any debt collector that submits an application prior to January 1, 2022 to operate pending the approval or denial of the application.
Prohibits a person from engaging in the business of debt collection without first obtaining a license, and provides that a debt collector is operating in this state if they are located in this state and are seeking to collect from a debtor that resides inside or outside the state or if they are located outside this state and are seeking to collect from a debtor that resides in this state.
Requires a license to be obtained for the licensee’s principal place of business and prohibits a license from being transferred or assigned. Further specifies that a separate license is not required for each individual branch office.
Requires the Commissioner to allow any debt collector that submits an application prior to January 1, 20222 to operate pending the approval or denial of the application.
Establishes definitions for purposes of the Act.
Specifies exclusions for licensure under the Act.
Provides the Commissioner with specified licensure, administration, examination, investigation, and enforcement authority.
Establishes the Debt Collection Licensing Fund within the state treasury.
Requires applicants for licensure to provide specified application information, submit to a background check, and pay specified application fees.
Specifies circumstances under which the Commissioner may deny an application for licensure or deem an application for a license abandoned.
Specifies requirements to maintain licensure under the Act.
Requires debt collectors and debt buyers to include their license numbers in their written and oral communications, as specified.

Related Legislation:

SB 750 (Wieckowski, 2019) would have licensed debt collectors and debt buyers under a law administered by DBO. (Withdrawn and not reset for hearing in Senate Banking and Financial Institutions Committee)

SB 233 (Leno, Chapter 64, Statutes of 2013) enacted the Fair Debt Buying Practices Act.

Staff Comments:

Overall costs for DBO to implement the provisions of this bill are dependent on the number of debt collectors required to be licensed, which is unknown. Currently, there is a Budget Change Proposal (BCP) to give DBO, among other things, new oversight authority over entities that are not currently required to be licensed in California. These unlicensed entities offer or provide financial products or services in California and are called “new covered persons” (NCPs). DBO estimates that debt collectors represent approximately 7,000 of the 9,000 NCPs over which the department would gain this new authority.

DBO was not able to provide a fiscal estimate at the time of this analysis. However, based on DBO licensing programs with similar resource needs and number of licensed locations, this bill could result in costs in the millions to tens of millions of dollars. Costs to DBO include implementation of the Act starting January 1, 2021, carrying out licensee examinations at least once every 36 months, and legal needs related to oversight and enforcement workload.

-- END --

SENATE COMMITTEE ON

BANKING AND FINANCIAL INSTITUTIONS

Senator Steven Bradford, Chair

2019 - 2020 Regular

Bill No: Hearing Date: May 19, 2020

Author:
Version:	Amended
Urgency:		Fiscal:
Consultant:

Subject:

SUMMARY

This bill creates a new licensing law applicable to debt collectors and debt buyers, administered by the Department of Business Oversight, as specified.

EXISTING FEDERAL LAW provides for the Fair Debt Collection Practices Act (FDCPA; Public Law 95-109), codified as 15 U.S.C. Sections 1692 through 1692p, which prohibits debt collectors from engaging in abusive, unfair or deceptive practices to collect debts. Violations of the FDCPA are enforceable through a private right of action or a class action, or through administrative action taken by the Federal Trade Commission or applicable federal banking agencies, including the federal Consumer Financial Protection Bureau.

EXISTING LAW

Provides for the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act; Civil Code Section 1788 et seq.), California’s state equivalent of the FDCPA. Like the FDCPA, the Rosenthal Act prohibits debt collectors from engaging in specified abusive, unfair, or deceptive practices to collect debts. Violations of the Rosenthal Act are enforceable through a private right of action. A debt collector who violates the Rosenthal Act is liable in an amount equal to the sum of any actual damages sustained by the debtor. A debt collector whose violation is willful and knowing is liable to the debtor for actual damages plus an amount between $100 and $1,000 as determined by the court. Prevailing parties are entitled to reasonable attorney’s fees and costs, as specified (Civil Code Section 1788.30). Additionally, any attempt to collect a consumer debt using a process that gives the appearance of being authorized or approved by a governmental agency is a misdemeanor punishable by imprisonment of up to six months in a county jail or by a fine up to $2,500, or both (Civil Code Section 1788.16).
Provides for the Fair Debt Buying Practices Act (FDBPA; Civil Code Section 1788.50 et seq.), which requires persons that purchase delinquent or charged-off consumer debt to maintain, and provide upon request, specified documentation proving that the alleged debtor is the individual associated with the original contract or agreement, and that the amount of indebtedness is accurate. The FDBPA also requires debt buyers to provide specified disclosures to consumers when attempting to collect debts that are beyond the applicable statute of limitations. Violations of the FDBPA are enforceable through a private right of action or a class action. A debt buyer who violates the FDBPA is liable to the debtor for actual damages, plus statutory damages of between $100 and $1,000 as determined by the court. In the case of a class action, a debt buyer is liable for statutory damages between $100 and $1,000 for each named plaintiff, or, if the court finds that the debt buyer engaged in a pattern and practice of violating the FDBPA, the court may award actual damages to the class in an amount not to exceed the lesser of $500,000 or 1% of the debt buyer’s net worth. Prevailing parties are entitled to reasonable attorney’s fees and costs, as specified. Recovery in an action brought under the Rosenthal Act or the Federal FDCPA precludes recovery for the same action under the FDBPA (Civil Code Section 1788.62).

THIS BILL

Adds a new Division 24 to the Financial Code, titled “Debt Collection Licensing Act” (DCLA), effective January 1, 2022, which requires the licensure of persons who engage in the business of debt collection in this state and is administered by the Department of Business Oversight (DBO). The DCLA:
1. Defines “debt collector” using identical language as the Rosenthal Act and provides that a person who meets the definition of “debt buyer” in the FDBPA is considered a debt collector for purposes of the licensing law. Provides that a debt collector is operating in this state if they are located in this state and are seeking to collect from a debtor that resides inside or outside the state or if they are located outside this state and are seeking to collect from a debtor that resides in this state.
2. Defines the terms “consumer credit transaction,” “creditor,” “debt,” “debt collection,” and “person” as those terms are defined in the Rosenthal Act.
3. Defines the terms “consumer debt” and “consumer credit” as those terms are defined in the Rosenthal Act and provides that the term “consumer debt” includes “charged-off consumer debt,” as that term is defined in the FDBPA.
4. Requires licensees to comply with the Rosenthal Act and the FDBPA and provides that a violation of the Rosenthal Act or the FDBPA constitutes a violation of the DCLA.
The DCLA:
1. Provides powers to the commissioner similar to those in other Financial Code licensing laws administered by the commissioner, including rulemaking authority; authority to prescribe the content of the licensing application and require applicants to apply through the Nationwide Multistate Licensing System & Registry; investigation and examination authority; and limited enforcement authority, which includes desist and refrain authority, the ability to order ancillary relief, and the ability to suspend or revoke a license.
2. Requires applicants for licensure to submit to a background check, as specified, pay specified application fees, and provide information requested by the commissioner.
3. Requires licensees to pay annual license fees, as specified; notify the commissioner regarding any changes that result in the information in their applications becoming inaccurate or incomplete and notify the commissioner regarding any changes in their places of business; develop policies and procedures reasonably intended to promote compliance with the DCLA; file annual and special reports and submit to requests for information as required by the commissioner; maintain surety bonds of at least $25,000; and submit to examinations by the commissioner at least once every 36 months.
4. Provides exemptions from licensure under the DCLA to depository institutions chartered under state or federal law, California Financing Law licensees, California Residential Mortgage Lending Act licensees, and Real Estate Law licensees, but allows the DBO commissioner to issue desist and refrain orders to any of these entities that violate the Rosenthal Act or the FDBPA and to order any of these entities to pay ancillary relief in connection with Rosenthal Act or FDBPA violations.
5. Authorizes the commissioner to issue a desist and refrain order to and to order the payment of ancillary relief by a person engaged in business as a debt collector without a license from the commissioner.
Amends the Rosenthal Act and the FDBPA to require debt collectors and debt buyers to include their license numbers on their written communications.

COMMENTS

Purpose: This bill is sponsored by the author to ensure greater consumer protection through enhanced oversight over debt collectors and debt buyers operating in the state.
Background and Author’s Perspective: According to the author’s office, California licensed the debt collection industry from 1927 to 1992 under a law administered by the Bureau of Collection and Investigative Services, under the Department of Consumer Affairs.

In citing the need for this bill, the author’s office observes that California is in the minority of states that currently fail to license debt collectors, along with Georgia, Kentucky, Mississippi, Missouri, Montana, New York, Oklahoma, South Carolina, Vermont, and Virginia. Most of the states that require licensing also have their own state-level fair debt collection laws with enforcement provisions; thus, other states impose licensing laws in addition to, not in lieu of fair debt collection laws.

Finally, the author’s office observes that the debt collection and debt buying industries are notoriously unscrupulous in their practices. Despite federal and state Fair Debt Collection Practices Acts, collection practices consistently remain a top consumer complaint. From July 2011 to March 2018, the federal Consumer Financial Protection Bureau received just over 400,000 debt collection complaints, representing nearly one-third of all complaints received. The most common concerns identified by consumers were attempts to collect a debt not owed (39%), written notification about debt (17%), and communication tactics (17%). The author notes that, while the California Attorney General (AG) can accept consumer complaints about debt collection and debt buying practices and does pursue major, widespread violations of the law, the AG cannot engage on every complaint filed or take enforcement action on every alleged violation. It is also unreasonable to expect individual consumers to bring their own actions for violations of the Rosenthal Act or the FDBPA, because very few attorneys will take small-dollar cases, and most consumers do not know what protections the laws afford them.
Discussion: This bill uses the two existing state laws applicable to debt collectors and debt buyers as its foundation. With only minor exceptions, this bill does not add any new requirements on debt collectors or debt buyers; instead, it adds a layer of regulatory oversight over debt collectors and debt buyers already subject to state law, but not currently subject to licensure. The author’s logic is that by layering a licensing and examination framework over existing state law requirements, the state will be better able to ensure that debt collectors and debt buyers comply with existing law.

Although this bill bears many similarities to many of the Financial Code licensing laws already administered by DBO, it does contain one significant difference: more limited administrative enforcement authority. Recognizing that the Rosenthal Act and the FDBPA already authorize private rights of action for violations of these acts, SB 908 contains a limited set of administrative remedies, including desist and refrain authority, the ability to order ancillary relief, and the ability to suspend and revoke licenses. Lack of civil and administrative penalty authority and citation and fine authority in SB 908 is intended to prevent situations where a licensee could be subject to both a lawsuit by a debtor and to an administrative or civil action brought by DBO for the same violation.
Governor’s Budget Proposal Would Give DBO Jurisdiction Over Debt Collectors: In its January budget, the Newsom Administration proposed to expand DBO and rename it the California Department of Consumer Financial Protection and Innovation (CDCFPI; Budget Change Proposal 1701-025-BCP-2020-GB). The trailer bill accompanying the BCP proposed to give DBO additional authority over its existing licensees and new oversight authority over entities which are not currently required to be licensed in California, but which offer or provide financial products or services in California. This second group (unlicensed entities that offer or provide financial products or services in California) are called “new covered persons (NCPs)” in the Governor’s proposal. DBO estimated that debt collectors represented approximately 7,000 of the 9,000 NCPs over which the department would gain new authority. If SB 908 is enacted, the scope of the Governor’s CDCFPI Budget Proposal will likely need to change, to reflect licensure of debt collectors and a resulting decrease in the number of NCPs over which the department will gain oversight.
Should Attorneys That Engage in Debt Collection Be Licensed? As noted in the Opposition section below, the California Creditors Bar Association is seeking an exemption from the licensing requirements of this bill for lawyers that are licensed by the State Bar and are engaged in the representation of clients. In an ordinary year, that topic would have been the focus of discussion in the Senate Judiciary Committee. This year, because the compressed timeframe available for policy committee hearings, that subject is before the Senate Banking and Financial Institutions Committee. Input provided to this committee by Senate Judiciary Committee staff (see below) does not include suggested amendments to address the concerns of the California Creditors Bar Association.

This bill’s author has also declined to provide a debt collector licensing exemption for attorneys on the following grounds: “Law firms operate as debt collection mills. They send collection notices on law firm letterhead and send communications to consumers using the law firm name. There is only one reason for this overlap in professions: because it works. Consumers see a notice from a law firm alleging they owe a debt. They are intimidated and frightened that they’re being sued or will be sued, even though most often that is not the case. To exempt attorneys from licensure would blow a huge hole through the licensure law.”
Other Outstanding Unresolved Issues: In addition to the issues raised by the opposition, the California Association of Collectors (CAC) is seeking several additional changes to the bill which, if made, would change CAC’s position from neutral to support. Examples of changes CAC would like to see include capping the maximum amount of an allowable licensee fee; a 48-month, rather than a 36-month examination frequency; creating a Debt Collector Advisory Committee to provide a formal means for the industry to regularly communicate with DBO, similar to the Credit Union Advisory Committee and the Escrow Law Advisory Committee; limiting the commissioner’s ability to release annual reports that contain private or proprietary information about debt collector licensees; clarifying, either in statute or regulation, the types of violations that would be grounds for license suspension or revocation; and precluding local jurisdictions from enacting their own debt collector licensing requirements. The author’s office remains in discussion with CAC about these and other issues.
Input from Senate Judiciary Committee Staff: Due to the COVID-19 Pandemic and the unprecedented nature of the 2020 Legislative Session, all Senate policy committees are working under a compressed timeline. This timeline does not allow this bill to be referred to and heard by more than one committee, as a typical timeline would allow. In order to fully vet the contents of this measure for the benefit of Senators and the public, this analysis includes the following information from Senate Judiciary Committee staff:

“This bill touches on various issues within the jurisdiction of the Senate Judiciary Committee, most prominently the issue of consumer protection. According to the author, despite the existence of the federal Fair Debt Collection Practices Act^[1] and the California’s Rosenthal Fair Debt Collection Practices Act,^[2] consumers continue to be plagued by unscrupulous and/or unlawful debt collection practices—in particular, attempts to collect on debts that are inaccurate, lack documentation, or are unenforceable. According to the author, consumers often do not realize they are being subjected to unlawful and/or incorrect debt collection efforts; even if they do, it is difficult to seek redress because the amounts at issue are below the threshold most attorneys will take on (though the amounts are far from small for the consumer). This bill would add a layer of oversight by establishing a licensing regime for debt collectors, to be managed and regulated by the Commissioner of Business Oversight; the Commissioner’s authority would include the power to create regulations, investigate alleged violations, and suspend or revoke licenses. This bill would also modify the restrictions on specific debt collection practices, specifically what information a debt collector must convey during phone calls and written or digital communications.

“A majority of states already require debt collection businesses to be licensed and/or registered.^[3] This bill would, therefore, align California with the growing consensus that debt collection requires significant state oversight and regulation. The bill adopts the same salient definitions relating to debt collection currently in effect in the Rosenthal Fair Debt Collection Practices Act, so the licensing requirement is limited only to persons or businesses which “in the ordinary course of business, regularly” engage in debt collection of consumer debt—i.e., debt owed by a natural person on a credit transaction conducted “primarily for personal, family, or household purposes.”^[4] In other words, only persons and businesses who spend a considerable portion of their business collecting on credit debt held by natural persons will have to be licensed; the bill will exclude from licensure, e.g., persons who attempt to collect on debts owed between businesses and persons who only incidentally engage in debt collection activities. The enforcement authority granted to the Commissioner in the bill does not include the power to levy a civil penalty or bring a public right of action; the Committee may wish to consider whether the enforcement mechanisms in the bill are sufficient.”
Support:
1. The California Low-Income Consumer Coalition, Consumers for Auto Reliability and Safety, Public Law Center, Bet Tzedek, Bay Area Legal Aid, and others write that the oversight and enforcement authority in SB 908 “is long overdue and badly needed. While California has had laws on the books requiring fair debt collection practices since 1977, our laws do little to stem the bad behavior they prohibit. This is because the law requires the consumer to sue the debt collection company...Because the state has no oversight or licensing requirements, the industry can largely behave as it wishes. California has no idea how many debt collectors operate within the state, the sheer volume of debt they are collecting from Californians, or what qualifications these companies are requiring of their employees who manage thousands of accounts and thus impact the lives of thousands of Californians. SB 908 will add California to the list of the thirty-four other states that require a license in order to collect on a consumer debt.”
2. Consumer Reports, the Western Center of Law & Poverty (WCLP), and California Advocates for Nursing Home Reform echo the aforementioned arguments. WCLP adds “Consumers will have a single location to view what companies are licensed, what companies are operating without a license, and any actions taken against a licensed company including suspension or revocation. The lack of any licensing in the largest state in the nation is a gaping hole of oversight over an industry that consistently violates consumer law.”
Opposition:
1. The California Creditors Bar Association is seeking an exemption from the licensing requirements of the bill for lawyers that are property licensed by the State Bar and are engaged in the representation of clients. “Members of the California Creditors Bar Association represent clients to collect a wide array of lawful obligations, including debts generated by defaults in contract obligations, consumer contracts, mortgage transactions, child support, and much more...Regulations of the State Bar already expressly require compliance with California’s Rosenthal Fair Debt Collection Practices Act, and violations by lawyers constitute grounds for disbarment....There is no public policy justification for subjecting lawyers to duplicative licensing by the Department of Business Oversight....A second license for precisely the same representation of clients is unnecessary, redundant, and will raise costs to clients.”
2. The United Trustees Association (UTA) is seeking an exemption from the licensing requirements of the bill for trustees performing acts related to nonjudicial foreclosures, which are specified in the Civil Code. “Members of UTA act as trustees under real property deeds of trust...In conducting nonjudicial foreclosures under deeds of trust, trustees must comply precisely with the requirements imposed by the Civil Code, commencing with Section 2924...Whether the inclusion of trustees in the definition of debt collectors under SB 908 is intentional or not, there is no public policy reason to require licensure of these limited agents acting under the Civil Code. Trustees perform acts exactly as required by law, have established liability for failures to comply, and in fact for decades have been granted a broad privilege for acts required under the law (see Civil Code Section 47). Imposing additional licensing burdens on trustees will increase costs for all parties without corresponding benefit.”
Amendments: This bill’s author will be proposing the following amendments in Committee to address requests from interested parties.
1. Page 6, lines 39 and 40, amend as follows: A license shall be obtained for the licensee’s principal place of business and ~~A license~~ shall not be transferred or assigned. A separate license is not required for each individual branch office.
2. Page 7, lines 3 through 9, amend as follows:
  
  (b)(1) Except as provided in paragraph (2), this division shall not apply to a depository institution, as defined in Section 1420 ~~an insured depository institution chartered under state or federal law~~, a person licensed pursuant to Division 9 (commencing with Section 22000) or Division 20 (commencing with Section 50000), or a person licensed pursuant to Part 1 (commencing with Section 10000) of Division 4 of the Business and Professions Code, or a trustee performing acts in connection with a nonjudicial foreclosure pursuant to Title 14, Chapter 2, Article 1 of the Civil Code (commencing with Section 2920).
3. Page 11, lines 5 through 9, amend as follows: (a) If, in the opinion of the commissioner, a person who is required to be licensed under this division is engaged in the business as a debt collector without a license from the commissioner, or a licensee has violated any provision of this division, an order, or a regulation adopted pursuant to this ~~provision~~ division, the commissioner may do any of the following:
4. Page 13, lines 9 and 10 amend, as follows: (a) A completed application for a license in a form prescribed by the commissioner and signed under penalty of perjury. Every application shall include the location of the applicant’s principal place of business and all branch office locations.
5. Page 19, after line 13, insert the following: (c) A licensee that opens a new branch office or changes the location of an existing branch office shall notify the commissioner in writing of the new branch office location within 30 days after the branch office commences business.
Prior and Related Legislation:
1. SB 750 (Wieckowski) from 2019 would have licensed debt collectors and debt buyers under a law administered by DBO. Never taken up by the author in the Senate Banking and Financial Institutions Committee.
2. SB 233 (Leno and Correa), Chapter 64, Statutes of 2013, enacted the Fair Debt Buying Practices Act.

LIST OF REGISTERED SUPPORT/OPPOSITION

Support

Bay Area Legal Aid

Bet Tzedek

California Advocates for Nursing Home Reform

California Indian Legal Services

California Low-Income Consumer Coalition

Center for Responsible Lending

Consumer Federation of California

Consumer Reports

Consumers for Auto Reliability and Safety

Courage California

East Bay Community Law Center

Public Law Center

Western Center on Law and Poverty

Opposition

California Creditors Bar Association

United Trustees Association

-- END --

15 U.S.C. §§ 1692-1692p. ↑
Civ. Code, § 1788 et seq. ↑
E.g., Alas. Stat. § 08.24.090; Ariz. Rev. Stats. § 32-1001 et seq.; Ark. Code, § 17-24-301; Colo. Rev. Stat. § 5-16-115; Conn. Gen. Stat. § 36a-801; Fla. Stat. § 559.553; Haw. Rev. Stat. § 443B-3; Idaho Code, § 26-2223; 225 ILCS 425/4; Ind. Code, § 25-11-1-3; La. Rev. Stat. § 9:3534.1; Maine. Rev. Stat. § 11031; Md. Bus. Reg. Code, § 7-301; Mass. Gen. Laws, ch. 93, § 24A; Mich. CLS § 339.904; Minn. Stat. § 332.33; Neb. Rev. Stat. § 45-601; Nev. Rev. Stat. § 649.075; N.M. Stat. § 61-18A-5; N.C. Gen. Stat. § 58-70-1; N.D. Cent. Code, § 13-05-02; Or. Rev. Stat. § 697.015; R.I. Gen. Laws §19-14.9-12; Tenn. Code, § 62-20-105; Utah Code, § 12-1-1; Rev. Code Wash., § 19.16.110; W. Va. Code § 47-16-4; Wis. Stat. § 218.04; Wyo. Stat. § 33-11-102. ↑
Compare Civ. Code, § 1788.2, subds. (c), (d), (e), with SB 908. ↑

SB 908: Debt collectors: licensing and regulation: Debt Collection Licensing Act.

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