California Passes Fair Debt Buying Practices Act

The California General Assembly Monday unanimously passed a bill that requires debt buyers in the state to have in their possession a long list of account information before debt collection efforts can begin.  The new law also mandates specific disclosure language debt buyers must use in collection communications.

Titled the Fair Debt Buying Practices Act, California SB 233 passed the Assembly Monday on a 72-0 vote. In late May, the bill passed the state’s Senate on a 36-0 unanimous vote. The measure now goes to California Governor Jerry Brown for his signature. Its provisions would take place on January 1, 2014.

Most significantly, the bill places a long list of requirements on purchasers of charged-off consumer debt that must be met before collection efforts can begin. Debt buyers must have in their possession proof that they are the sole owner of the debt, the account balance at chargeoff, date of default or last payment, name and address of both the creditor and debtor, and a complete chain of title on the account if bought and sold multiple times.

There is also a long list of requirements for initial communications with a debtor. In addition to explicitly stating that the consumer has the right to request the information outlined above, debt buyers must disclose certain rights to consumers regarding time-barred debt.

If a debt is too old to file suit, but still within credit reporting thresholds, the debt buyer must use the following language in its first written communication:

“The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it. If you do not pay the debt, [insert name of debt buyer] may [continue to] report it to the credit reporting agencies as unpaid for as long as the law permits this reporting.”

If the debt is beyond both the reporting and legal statute of limitations, the following must be included in the letter:

“The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it, and we will not report it to any credit reporting agency.”

The Fair Debt Buying Practices Act also sets formal requirements for the information presented as evidence in a debt collection lawsuit and bars a debt buyer from selling an account that has been settled for less than the full amount owed.