Legislators in California on Tuesday pushed through tougher regulations for the collection industry, approving a bill opponents say will create an unfair burden on debt buyers by requiring excessive documentation and restricting legitimate collection efforts.
Consumer advocates touted the move as a key step toward protecting residents in the state from shady collectors.
The Fair Debt Buyers Practices Act passed the California Senate by a vote of 22 to 14. It now goes to the Assembly, where it will need to pass before heading to California Gov. Jerry Brown’s office. The bill states that companies purchasing consumer debt and then seeking to collect must provide additional documentation to consumers to prove they are seeking the right sum money from the right person.
Senate Bill 890, by Senator Mark Leno (D-San Francisco), specifically will prohibit debt buyers from obtaining a judgment in a collection lawsuit unless the buyer can document their ownership of the debt, the balance of the debt, the date of the default or last payment, the identity of prior owners of the debt and the name and address of the debtor in the original creditor’s records.
“It’s really gotten out of control, and a lot of innocent people have been caught up,” said Leno, who was pushing the bill.
Leno’s colleague, Sen. Lou Correa (D-Anaheim), was apparently one of those individuals. Correa was wrongly targeted by a collector who was seeking $4,000 from someone with a similar name, leading to a court order to garnish his wages.
“Aggressive debt buyers are using deceptive tactics to collect funds when they cannot even prove they are targeting the right consumer for the correct debt amount," adds Leno. "The Fair Debt Buyers Practices Act relieves consumers and courts from the burdens and costs associated with processing large volumes of unsubstantiated debts.”
State Attorney General Kamala D. Harris' office applauded the measure.
“Too often, a consumer can get ensnarled in a long and costly battle to prove they are not the ones responsible for debt,” Harris said. “The Fair Debt Buyers Practices Act will put reasonable requirements on debt buyers and ensure consumers are not forced to pay the debts of others.”
The California Department of Consumer Affairs issued a report in August 2011 concluding that much of the debt purchased by debt buyers is not accompanied by sufficient documentation to identify the debtor. Yet, as many as 90% of some debt buyers claims result in a default judgment where no defendant appears to challenge the debt claim. This often happens because the consumer is not even aware of the claim.