New Rules for Debt Collectors
What seemed like a simple loan in the beginning can get complicated quickly. Most borrowers do not realize that their car loan, or credit card debt, or even student loans, can be bundled and sold in a secondary market as part of a larger debt portfolio. All of a sudden, the bills are coming from afar, under the logo of some company you have never heard of. Worse yet, the new company may be charging the wrong amount or adding on fees that you never agreed to. The entity demanding payment might own the debt or just be a "servicer" collecting the debt for a flat fee. If it bought the debt, chances are it paid mere pennies on the dollar, taking the risk it can collect only part of what is owed.
This practice is of debt buying and downstream debt collection is rife with abuse. The Federal Trade Commission has been studying the problem for years and has reported on the need for reform. In the past, these debt bundles might have been evidenced by nothing more than a spreadsheet with names, balance figures, and phone numbers. Debt collection lawyers could get default judgments by the bushel basket.
But all that is about to change in The Golden State. California lawmakers have taken action. Sponsored by Sen. Mark Leno (D-San Francisco) and Lou Correa (D-Anaheim), SB 233 is commonly known as the "Fair Debt Buying Practices Act." The new law applies to debt sold on or after January 1, 2014. At last, it regulates the activities of a person or entity that has bought charged-off consumer debt for collection purposes. It also sets forth sensible rules a debt collector must follow before filing a lawsuit against a borrower. The law prohibits a debt buyer from making any written statement in an attempt to collect a consumer debt unless the debt buyer actually has concrete information that (1) the debt buyer is the sole owner or is authorized to assert the rights of all owners of the specific debt at issue, (2) the debt balance, (3) the name and address of the creditor at the time the debt was charged off, and (4) other details. The bill would require the debt buyer to make certain documents available to the debtor, without charge, within 15 days of a request, along with other significant consumer protections.
In other words, if you get a call from a debt collector you don't recognize or you get a bill from an entity you never heard of, you may now be entitled to information showing that stranger has a right to payment. In short, the borrower will be able to say to the debt collector, "Prove it." Too often borrowers have no way to verify that the payment they are making will actually go toward the amount owed. Too often, confused borrowers who get sued simply default, rather than seeking legal advice. Consumer advocates believe this new California law will prevent debt collection scams, and bring fairness and accountability to what the FTC has called a "broken system" of debt collection practices.