The California Senate Banking and Financial Institutions Committee is currently considering Senate Bill (SB) 1286, which would expand the scope of the Rosenthal Fair Debt Collection Practices Act (RFDCPA) to also prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of small business debts.

Unlike the federal Fair Debt Collection Practices Act, the RFDCPA applies to a creditor collecting its own debts in its own name, as well as to third-party servicers collecting debts on behalf of another. This means that if passed, the proposed amendments would expand the RFDCPA’s requirements to certain small business financing entities and their collection partners.

Proposed amendments under SB 1286 include:

  • Defining “small business” and “small business credit transaction”: The bill defines a “small business” as an independently owned and operated business that is not dominant in its field of operation, has its principal office and officers domiciled in California, 100 or fewer employees (including affiliates’ employees), and average annual gross receipts of $15 million or less over the past three years. A “small business credit transaction” is defined as a transaction where a small business or a small business owner obtains money, property, or services on credit primarily for purposes related to the business’s activities.
  • Defining “small business debt” and “small business credit”: The bill defines “small business debt” and “small business credit” as money, property, or their equivalent, due or owing or alleged to be due or owing from a natural person due to a small business credit transaction. This broad definition could encompass amounts due under a sales-based financing transaction.
  • Expanding legal misrepresentation provisions: The RFDCPA prohibits certain types of threats and harassment of debtors and requires a debt collector to provide certain information to the debtor. The bill would expand these provisions to cover all types of covered debt.
  • Extending identity theft provisions: The RFDCPA requires debt collectors to stop collecting a consumer debt when provided with certain information, including the debtor’s status as an alleged victim of identity theft. The proposed bill would extend these provisions to the collection of all covered debts.
  • Preserving existing protections: The RFDCPA includes unique provisions, such as specific disclosures that a debt collector must provide if it attempts to collect a time-barred debt and prohibits attempting to collect a debt by means of judicial proceedings outside the county in which the debtor has incurred the debt or the county in which the debtor resides. These provisions would apply to small business debt as well.

If SB 1286 is passed, it will take effect on January 1, 2025.