California law now bars the door to the courthouse to a debt buyer holding a claim beyond the statute of limitations.
Civil Code § 1788.56. That’s been the law since January, 2014 as to debt acquired after that date.
What’s a statute of limitations
The statute of limitations draws a line, based on the age of the debt, beyond which a creditor may not get a judgment on that debt. But the critical weakness in California’s statute of limitations is that the person sued had to answer the lawsuit and claim its protections.
The burden was on the person sued to appear and defend.
Too often, the debtor didn’t know that and the collector got a judgment on debt that should have been unenforceable.
Who’s locked out of court
No longer, as to purchased, charged-off debt.
If the party holding the debt bought it from someone else, after the original creditor had charged the debt off of its books, the buyer can’t file suit on the debt after the statute runs.
And a check of reported appellate cases in California in the five years since shows no cases appealed under this statute.
What it doesn’t tell us is what’s happening at the trial court level.
Since this statute was intended to deal with the kind of suit where the consumer never appeared in court and the debt-buyer won by default, there’s not likely to be an easily located record.
But, there’s more to the law than just a bar to filing suit.
Required information about debt
A debt buyer may not even contact a person about a consumer debt unless the debt buyer has in its possession
- Proof that it is the sole owner of the debt
- Balance of the debt at charge off and a breakdown of charges added since charge off
- Date of default or last payment
- Name, address and account number used by the original creditor
- Name and address of the account debtor from the original creditor’s records
- Name and address of all entities that purchased the debt after charge off
Scope of consumer protection
These new provisions became part of California’s Rosenthal Fair Debt Collection Act. These additions are to be called the Fair Debt Buying Practices Act.
Effective January 1, 2014, they apply to debt bought or sold after that date. At first, you may be left to guess whether a debt buyer calling about old debt is subject to these restrictions.
To be covered by the FDBPA, the debt must be part of a package of charged-off debt. Old debt that slips into a portfolio of largely claims that have not been charged off is not subject to this act.
That mystery term, charged-off, gets a statutory definition:
"Charged-off consumer debt" means a consumer debt that has been removed from a creditor's books as an asset and treated as a loss or expense.
A debt may be charged off of the original creditor’s books and still be legally enforceable, if the statute of limitations hasn’t run.
Courts must demand proof
Another ground breaking provision requires that no judgment be entered, even if the debtor didn’t answer the complaint, unless the collector has supplied a sworn statement as to compliance with the elements of the FDBPA. Civ. Code 1788.60.
The collector must also provide a copy of the contract sued on, authenticated by a sworn statement.
This will be interesting to watch as, often, even the original creditor can’t produce a copy of the contract.
Who will be available to the debt buyer to vouch for the contract? And will the courts monitor robo-signed affidavits? And impose consequences for lying?
Damages for violation
A debt buyer who violates the statute is liable for actual damages caused by the violation, including the amount of any judgment obtained against the individual; statutory damages of no less than $100 and no more than $1000; and reasonable attorneys fees and the costs of the suit to enforce these rights.
The debt buying trade press forecasts that the California standards will be applied to all portfolios of old debt sold by businesses. No more, they say, of getting just the account debtor’s name, address, Social Security number, balance and account number on a computer disk.
Brave new world
The Fair Debt Buying Practices Act is a worthy step forward in preventing abuse by purchasers of zombie debt.
I’m particularly encouraged by the provision outlawing filing suit on debt that is time barred. I hope to see a like provision applied to debts still in the hands of the original creditor. Otherwise, the application of the statute of limitations are restricted to those individuals savvy enough to file an answer to the suit.