On September 24, California Governor Gavin Newsom signed into law a package of consumer protection laws, with three bills aimed directly at collection practices. These new laws introduce significant changes in the areas of commercial debt collection practices, medical debt reporting, and civil actions for money judgments.

SB 1286: Expansion of Rosenthal Fair Debt Collection Practices Act to Commercial Debts

SB 1286 expands the scope of the Rosenthal Fair Debt Collection Practices Act (RFDCPA) to include certain commercial debts. This legislation extends consumer debt collection protections to small business debts up to $500,000. 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. 

SB 1286 introduces several key amendments:

  • Defining “covered commercial credit transaction”: The law defines a “covered commercial credit transaction” as a transaction between a person and another person in which property, services, or money, of a total value of no more than $500,000, is acquired on credit by that person from the other person for use primarily for other than personal, family, or household purposes.
  • Defining “covered commercial debt” and “covered commercial credit”: The law defines these terms as money, property, or their equivalent, due or owing or alleged to be due or owing from a natural person due to a lender, a commercial financing provider, as defined in Section 22800 of the Financial Code, or a debt buyer, as defined in Section 1788.50, by reason of a covered commercial credit transaction. This broad definition could encompass amounts due under a sales-based financing transaction.
  • Expanding legal misrepresentation provisions: The RFDCPA’s existing provisions against threats and harassment are extended to cover all types of covered debt.
  • Extending identity theft provisions: Protections for victims of identity theft are broadened to include small business debts.
  • Preserving existing protections: Unique provisions of the RFDCPA, such as specific disclosures for time-barred debt and restrictions on judicial proceedings, are maintained and extended to small business debt.

SB 1061: Medical Debt Reporting Ban

As discussed here, under SB 1061 medical debt will no longer appear on consumer reports. The bill also prohibits using medical debt listed on a consumer report as a negative factor when making credit decisions.

California becomes the eighth state to pass legislation prohibiting medical debt from either being included on consumers’ credit reports or used to assess the creditworthiness of consumers applying for credit. The Consumer Financial Protection Bureau has also begun a rulemaking process to remove medical debt from consumer reports.

AB 2837: New Requirements for Wage Garnishments and Bank Levies

AB 2837 establishes new service and execution requirements for wage garnishments and bank levies. Specifically, the law requires a judgment creditor to now take additional steps to verify a judgment debtors address and provide notice of enforcement. The law further limits the time period during which an earnings withholding order may be enforced and the frequency with which such an order may be sought. AB 2837 also requires a financial institution to protect from levy cumulatively exempt funds belonging to the debtor and held in multiple accounts.