New California Law on Debt Buyers Unfair Practices

New California Law on Debt Buyers Unfair Practices

In July, Governor Jerry Brown signed the Fair Debt Buying Practices Act into law effective the 1st of the year. The new law will bar unfair practices of many debt buyers–companies that buy up old debt for pennies on the dollar and then seek to collect from consumers.

The debt buyers typically buy old debts from banks–credit card companies–under agreements that the buyers would have very limited access the actual account information for a short period and after that, the debt buyers have to pay the banks to research the accounts. Because of these restrictions, the debt buyers’ claims were often based on only sketchy and sometimes false information. The debt buyers resist consumers’ requests for information on the accounts because of these factors. Some debt buyers infamously just faked account histories. There were instances of fake affidavits presented in court signed by persons who did not exist.

Under the new law, California debt buyers cannot make any written statement in an attempt to collect a debt unless the buyer possesses proof that the debt buyer is the sole owner of the account, the balance of the account at charge-off, date of default or date of last payment, the name and address of the charge-off creditor, the last known address of the consumer and a complete chain of title for accounts that have changed hands multiple times.

The new law will also require a debt buyer to have access to a copy of a contract or other document evidencing the consumer’s agreement to the debt. (Many credit card companies don’t retain the original applications more than a few months).

For debts where no signed contract or agreement exists, the debt buyer must have access to a copy of a document provided to the consumer while the account was active to prove debt was incurred. Debt buyers must provide consumers all of the above information upon a consumer’s written request for verification.

If the information is not provided to the consumer within 15 calendar days, the debt buyer must cease collection efforts until such time as the information is provided to the consumer. If the statute of limitations has run, the debt buyer must make certain disclosures to that effect in its initial letter to the consumer.

Consumers can sue for violations of the new law and seek penalties up to $1,000 in the case of individual litigants, and up to $500,000 or 1% of the agency’s net worth (whichever is less), in the case of class action suits.

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