Home > Managing Debt > A New Debt Collection Law: What It Means for You

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Companies that purchase charged off consumer debts owed by California residents will have some new and stricter guidelines to follow starting on Jan. 1, 2014. The changes are outlined in California’s Fair Debt Buying Practices Act. Most of the new rules resulting from the Act will be applied to debts purchased after the enactment date.

There are good reasons for people struggling with unpaid bills in California to welcome these protections. And from the perspective of a debt and credit geek like me, the Act can help Californians map a more predictable path to resolving old bills. Here are some of the highlights.

Debt buyers have not been expressly prohibited from suing to collect on time-barred debts, aka accounts that pass the statute of limitations (SOL) to file a legitimate suit. Generally, it has been the responsibility of the consumer, once a collection lawsuit is filed, to raise the SOL as a defense. Moving forward, debt buyers will be prohibited from filing collection lawsuits on debts past the SOL in California (credit card SOL is 4 years from date of last activity in California). But more than just a clearly worded prohibition, the Act contains a provision for a debt buyer suing on time-barred debt to be held liable for the violation “including, but not limited to, the amount of any judgment obtained by the debt buyer as a result of a time-barred suit to collect a debt from that person.”  I call that a deterrent!

Don’t get me wrong, debt buyers can and do legitimately file lawsuits to collect debts they purchase. I should point out that the Act clearly states in SECTION 1(e): “This act is not intended to affect the legal enforceability, or collectability, of a charged-off consumer debt, but is intended to impose enforceable standards upon the collection and litigation of consumer debt…” But having set standards that can be enforced will help people who are dealing with past due bills — in the hands of a debt buyer – to clearly understand the nature of the debts owed, and be better prepared to resolve them. And if a debt buyer does sue in order to collect, much of the following will soon be required to be part of their original filing with the court, which has not been the case prior to the new rules.

Debt Buyers Will Have to Provide Certain Information

Debt buyers must possess some of the following information in order to make a written statement to collect:

  • An accurate account of the balance of a debt at charge-off, and the nature and reason for any post-charge-off interest and fees. While this part of the Act does not “require a specific itemization” it does require those items be broken out separately. I expect this will curb the questionable practice of inflating balances in collection.
  • The date the account went into default, or the date of last payment. Knowing this date will help consumers understand how much risk remains that they can still be sued for a debt, and should also assist in helping to better understand any valid post charge-off interest and fees.
  • The name and address of the charge-off creditor (the original lender), and of any previous purchasers of the account. This will help people to clearly identify whether the debt is their own, which has not always been easy to determine when debt buyers resell debts to other companies.
  • The debt buyer must have access to a copy of the agreement evidencing a debt. This can include “the most recent monthly statement showing a record of a purchase transaction, last payment, or balance transfer…” Providing consumers this type of documentation is typically something debt collectors and debt buyers are already accustomed to in order to meet their obligations when responding to debt validation requests under existing federal laws (the Fair Debt Collection Practices Act). But there is more.

Consumers have long been able to request validation of a debt using federal consumer protection laws. Debt collectors are required to respond to those requests, and if they should wish to continue their collection efforts. The Fair Debt Buying Practices Act will now require the collector to provide information relating to the above bullet items within 15 days of receiving a consumer’s written request. And collection efforts must cease until the request has been met.

New Written Collection Notice Disclosure

Debt buyers will have to include the following notice in their first collection notice to California borrowers:

“You may request records showing the following: (1) that [name of debt buyer] has the right to seek collection of the debt; (2) the debt balance, including an explanation of any interest charges and additional fees; (3) the date of default or the date of the last payment; (4) the name of the charge-off creditor and the account number associated with the debt; (5) the name and last known address of the debtor as it appeared in the charge-off creditor’s or debt buyer’s records prior to the sale of the debt, as appropriate; and (6) the names of all persons or entities that have purchased the debt. You may also request from us a copy of the contract or other document evidencing your agreement to the debt.

“A request for these records may be addressed to: [debt buyer’s active mailing address and email address, if applicable].”

I should again point out that most of the larger and sophisticated debt buyers are prepared to meet these kinds of requests from a consumer they are collecting from, but that has not always been the case, and still isn’t in too many instances.

There are also additional requirements for debt buyers to prominently display in collection notices when debts are time-barred from suing in order to collect, and that convey their ability to continue reporting collection accounts to the credit reporting agencies.

Documenting Settlement & Payment Agreements

Negotiating a settlement where you pay off the balance to a debt buyer should always be documented. During the past few years it has become more common for them to provide documentation of the agreements you reach. But some large debt buyers still make it difficult to get agreements from them in writing. The Act goes so far to require that any payment arrangement, where you agree to monthly terms to pay off your debt, be outlined in a written monthly statement. Here’s the key section of the Act related to documenting payments and agreements:

“(b) A debt buyer that receives payment on a debt shall provide, within 30 calendar days, a receipt or monthly statement, to the debtor. The receipt or statement shall clearly and conspicuously show the amount and date paid, the name of the entity paid, the current account number, the name of the charge-off creditor, the account number issued by the charge-off creditor, and the remaining balance owing, if any. The receipt or statement may be provided electronically if the parties agree.

(c) A debt buyer that accepts a payment as payment in full, or as a full and final compromise of the debt, shall provide, within 30 calendar days, a final statement that complies with subdivision (b). A debt buyer shall not sell an interest in a resolved debt, or any personal or financial information related to the resolved debt.”

I expect larger debt buyers like Midland Funding LLC and Portfolio Recovery and Associates to be prepared for all of the changing rules that will take effect in just a few short weeks from now. There are, in fact, additional changes at a national level that will come next year that may shake up the debt collection industries. But California is way ahead of most other states with setting, and then hopefully enforcing, debt buyer standards that protect consumers in that state.

Image: iStock

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  • BlessedInsanity

    THIS is the part that kills me…………………………. “Most of the new rules resulting from the Act ((((((((((((((((will be applied to debts purchased after the enactment date))))))))))))))))))).

  • BJ

    I am in NC. My question is about debt buyers providing proof that I owe the debt. This is an attorney that [redacted] hired. They have sent a letter of intent to sue. They have provided a generic terms of agreement from 2012, not an original agreement (from years prior) with my signature. They have also only provided a final statement. If this goes to court, will they have to provide all statements in order to account for the debt? Will a judge require them to do this if I request it?

    Also, what is sufficient as proof of “bill of sale”? Do they just have to show a spreadsheet with all names and account numbers? Do they show the total purchase for the entire portfolio of accounts they purchased? Is it an official document or just a bunch of names and account numbers the company put together?

    Will the judge just decide who they believe? Is the judge going to ask me if I owe the debt?


    • Jeanine Skowronski

      Hi, BJ,

      You may want to consult a consumer attorney to learn what types of documentation may be required by your or the creditor in your state and what your best course of action may be.



  • Bartmas

    I hit hard times, tried to negotiate with debtors to no avail, Had an 800 score, kept paying until my savings was gone and then the creditors said ok let’s negotiate but it was too late for me, Target charged off debt, it was picked up by another collection agency, sold again to another one but this one filed a civil suit against me which I didn’t know about until 2.5 months after it was filed. I counter filed because I had no original contract with them but didn’t know people could buy your debt. How do you negotiate when the $ are gone and why should I have to pay someone who paid pennies on the dollar the original debt… how can pond scum be allowed to take advantage of people who fall to hard times?

  • Bartmas

    Am I able to find out how my the debt buyer paid for my charged off debt ? Why is this practice allowed when the unsecured debt wasn’t a signed contract with the debt buyer?

  • http://www.coralseamercantile.com.au Coral Mercintile

    Very nice update about debt collectors law. People need to know about the debt collectors and their rights for debt repayment. Thanks

  • John

    I wonder if this act will push some debt collectors out of Calif or even stop collecting in Calif. Also, will all banks provide the information required for debt collectors? Providing the information, might increase both sides cost….credit card company and debt collector.

    • http://consumerrecoverynetwork.com/ask-a-question/ Michael Bovee

      I do not think the new requirements will push debt collectors/debt buyers out of California at all. A couple of other states recently made some changes to laws that required adjustments from collectors prior to suing to collect etc. (NC would be a fair example). Debt buyer suits slowed for a year or so while everyone adapted, then picked up again.

      There is another element to add to the recent changes for debt buyers collecting in California later this year. Actually, for anyone collecting debts in any state. And that is the publishing of CFPB rules that will impact everyone that touches a file in the life cycle of a debt.

      I do not think I am out on a limb saying that all banks that fit CFPB regulatory and supervisory purview will be required to meet a minimum documentation standard whether selling or assigning debts.

      I do not see costs related to media storage and availability increasing portfolio purchase prices much, if any. I do not even see much of an increase in lawsuits to collect as a result of ready media.

      It is going to be an interesting year.

      • radmo

        Does this new debtor buyers law apply if the debt buyer company bought my credit card account after 1/1/14 but that account was already turned into a judgment by the first debt buyer before the current debt buyer bought it? thanks for clarifying that.

        • http://consumerrecoverynetwork.com/ask-a-question/ Michael Bovee

          The prior sale and existing judgment would trump I believe, but run your question by an experienced debt defense attorney in CA to be sure.

        • Jensen

          Yes, the debt buyer law will always apply, and you should always ask for the new debt collector to prove they have a legal right to collect from you. If a judgement was issued against you, then judgment creditor may have sold it, and if they did, I would simply ask for the bill of sale and chain of title that prove the new buyer has a legal right to collect the debt. Also you may have other considerations. Such as being judgment proof, do you have any money or assets? Do you have more debts than assets? I was able to get several clients accounts settled because my clients were “judgment proof” they had nothing to attach. If you decide to settle make sure they give you something in return, such as removing the derogatory info from your credit report. Unfortunately a judgment may be enforcable for 10 years, but you should check the state the judgement was obtained, If your insolvent, I would contact the debt buyer and let them know instead of keeping this debt haging around until your 100..

          • http://www.Credit.com/ Gerri Detweiler

            The only caution I’d add is that the debt buyer law in this story is a California law, not a federal law.

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