The New California Fair Debt Buying Practices Act

Senate Bill 233, the Fair Debt Buying Practices Act, passed the California legislature and was signed into law in the summer of 2013.  The Act, which will apply to debt sold or resold on or after January 1, 2014, regulates entities buying consumer debt for collection purposes by imposing strict documentation requirements. A failure to follow the act results in liability to the debtor and possible dismissal of the debt buyer's lawsuit.

The new act requires that third-party debt buyers actually possess certain information before sending consumers collection letters and statements. This information includes: (1) proof that the debt buyer is the sole owner of the debt, (2) the balance of the debt when it was charged-off by the original creditor, (3) an explanation of any post-charge-off fees and interest, (4) the date of default or last payment, (5) the name and address of the creditor that charged-off the account associated with the debt and (6) the last known name and address of the debt as it appeared on the records of the original creditor. The act also requires that debt buyers have access to the original credit contract between the consumer and the original creditor, if available. 

Further, debt buyers may not sue or obtain default judgments (judgments obtained because the consumer does not come to court) unless specific information is alleged and included in the debt buyer's complaint. A failure to include the required information results in a violation of the act and possible dismissal of the debt buyer's complaint.

Consumers may sue debt buyers for actual damages suffered along with statutory damages of no less than $100 and no more than $1,000. Successful plaintiffs are entitled to costs and reasonable attorney's fees. The act specifically allows for class action lawsuits, with additional damages of up to $500,000 or 1 percent of the net worth of the debt buyer if the court finds a pattern and practice of violations of the act. See the bill PDF here.