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February 14, 2012 > Passage of Fair Debt Buyers Practices Act

Passage of Fair Debt Buyers Practices Act

Submitted By the Office of the Attorney General

Attorney General Kamala D. Harris announced on January 31, 2012, that the State Senate passed legislation to protect consumers from unfair debt collection practices.

The Fair Debt Buyers Practices Act will require purchasers of consumer debt, or debt buyers, to provide documentary evidence to consumers to ensure their collection efforts are directed at the proper individual. Debt buyers have flooded California's courts with lawsuits seeking judgments on debts without adequate documentation, often resulting in collections efforts against the wrong person.

"Too often, a consumer can get ensnarled in a long and costly battle to prove they are not the ones responsible for debt," said Harris. "The Fair Debt Buyers Practices Act will put reasonable requirements on debt buyers and ensure consumers are not forced to pay the debts of others."

Consumer debt is routinely purchased and re-sold in bundles, made up of thousands of accounts, with inadequate documentation. As a result, debt collection efforts often target the wrong consumers, wrong amounts or seek payment on debt that has expired or been discharged.

Senate Bill 890, by Senator Mark Leno (D-San Francisco), would prohibit debt buyers from obtaining a judgment in a debt collection lawsuit unless the debt buyer can document their ownership of the debt, the balance of the debt, the date of the default or last payment, the identity of prior owners of the debt and the name and address of the debtor in the original creditor's records.

In addition, the debt buyer must also have the original contract or a document provided to the debtor while the account was active to show evidence of the debt.

"The passage of this legislation is a major breakthrough for consumer protection in California," said Senator Leno. "Aggressive debt buyers are using deceptive tactics to collect funds when they cannot even prove they are targeting the right consumer for the correct debt amount. The Fair Debt Buyers Practices Act relieves consumers and courts from the burdens and costs associated with processing large volumes of unsubstantiated debts."

The California Department of Consumer Affairs issued a report in August 2011 concluding that much of the debt purchased by debt buyers is not accompanied by sufficient documentation to identify the debtor. Yet, as many as 90 percent of some debt buyers' claims result in a default judgment where no defendant appears to challenge the debt claim. This often happens because the consumer is not even aware of the claim.

The Federal Trade Commission received more than 33,000 complaints regarding the validity of collection efforts in 2010 and has described the system for resolving disputes as "broken."

SB 890 passed the Senate on a 22 to 14 vote and now moves to the Assembly.

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