California Debt Collection Laws Take Effect Jan. 1, 2019

Three new California bills related to debt collection licensing, time-barred debts and more are coming in the New Year.

12/19/2018 9:00 AM

California Debt Collection Laws Take Effect Jan. 1, 2019

If you collect debt in California, you may remember that California Gov. Jerry Brown signed three debt collection bills into law over the summer. Now that the cold winds of December are blowing, it’s important to remember that these bills will go into effect Jan. 1, 2019. The three bills are A.B. 1526, which amends sections 1788.14 and 337 of the California civil code adding requirements for time-barred debts; A.B. 38, which clarifies the definition of a “student loan servicer”; and A.B. 1974, which provides parameters for collecting debts owed to public schools, ACA International’s Compliance Analyst Laura Dadd reports.

Just like several other states, the amendments to sections 1788.14 and 337 of the California civil code will require debt collectors to provide consumers with a notice that they cannot be sued for a debt that is time-barred. The new law provides two possible options to use depending on whether the seven-year period for credit reporting debts has run out. The notices are as follows.

For debts that may still be credit reported under the FCRA:

“The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it. If you do not pay the debt, [insert name of debt collector] may [continue to] report it to the credit reporting agencies as unpaid for as long as the law permits this reporting.”

For debts that cannot be reported under the FCRA:

“The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it, and we will not report it to any credit reporting agency.”

Currently, there is no information available as to whether or not debt collectors who do not furnish data can modify these notices.

The amendments also add a new section to statute 337 stating that legal proceedings to collect the debt cannot be initiated after the statute of limitations has run and the statute of limitations can only be extended under certain circumstances.

As of July 1, 2018, California established a licensing requirement for student loan servicers. In Section 28104 of California’s financial code, the initial definition of a student loan servicer was: “any person engaged in the business of servicing student loans.” A.B. 38 clarifies this overly broad statement by providing what the term does not include as well:

“A ‘student loan servicer’ does not include a debt collector, as defined in Section 1788.2 of the Civil Code, whose student loan debt collection business, and business operations, involve collecting, or attempting to collect, on defaulted [federal] student loans…or private student loans, in default…”

However, those debt collectors who also service non-defaulted loans are considered “student loan servicers” under the statute and must be licensed.

Finally A.B. 1974, which concerns debts owed to public schools and also goes into effect next month, adds a new section to California law and states that, “[a] pupil or former pupil, unless emancipated at the time the debt is incurred, shall not owe or be billed for a debt owed to a public school or school district.”

The new law also prevents a debt collector from credit reporting these types of debts owed by a parent or guardian and prevents the sale of debts owed to public schools by a parent or guardian.

ACA International members collecting debt in California will want to review their policies and procedures for handling time-barred debt and sending out correspondences in preparation for the Jan. 1 effective date.

Members who collect student loan debt or debts owed to public schools will also want to review their policies and procedures to make sure they are compliant with the new laws and amendments by the effective date.

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