California Enacts Additional Limits on Collecting Time Barred Debts
Beginning in 2019, all California “debt collectors”—including creditors collecting their own debts regularly and in the ordinary course of business—will be required to provide notice to debtors when collecting on debts that are past the statute of limitations and will be prohibited from suing on such debts. The new law is based on provisions in the 2013 California Fair Debt Buying Practices Act. However, unlike the 2013 Act, which limited the notice requirement to “debt buyers,” the new law extends the notice requirement to any collector, wherever located, that is engaged in collecting a debt from a California consumer.
The notice requirements have been added to the Rosenthal Fair Debt Collections Practices Act, which applies to “any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection.” Under the new law, collectors must deliver one form of notice if an account is reported to credit bureaus and another form if it is beyond the Fair Credit Reporting Act’s seven-year limitation period, or date for obsolescence. (There is no separate notice for a collector who has not reported, and will not report, an account to credit bureaus for any other reason.)
The notices, which are identical to those in the 2013 California debt buying law, must be “included in the first written communication provided to the debtor after the debt has become time-barred” or “after the date for obsolescence,” respectively. “First written communication” means “the first communication sent to the debtor in writing or by facsimile, email or other similar means.” We recommend that clients who email the “first written communication” ensure they receive an effective consent to receive electronic communications from debtors.
We surmise that the BCFP may be studying California’s disclosures as the BCFP formulates its notice of proposed rulemaking for third-party debt collection, which it has said it will issue next year. The 2013 advance notice of proposed rulemaking and 2016 outline of proposalsissued by the Cordray-era Bureau suggested it was considering limits on the collection of time-barred debts. Therefore, California’s new law may influence any ongoing discussions and drafting by the Bureau’s current staff and leadership on this point.
The new California law also amends the statute of limitations provision in Section 337 of the California Code of Civil Procedure to prohibit any person from bringing suit or initiating an arbitration or other legal proceeding to collect certain debts after the four year limitations period has run. With this amendment, the expiration of the statute of limitations will be an outright prohibition to suit, rather than an affirmative defense that must be raised by the consumer.