California’s legislature passed a bill last week further regulating the collection of time-barred debt under the Rosenthal Act, California’s version of the Fair Debt Collection Practices Act (FDCPA). The new law will become effective Jan. 1, 2019, assuming the governor signs it (which he is expected to do).
Under the new bill, if the debt is time-barred, the first written communication must state: “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.”
If the debt is time-barred and past the obsolescence dates of Fair Credit Reporting Act Section 605, the first written communication to the debtor must instead state that the debt will not be reported to any credit reporting agency.
The new bill also affirmatively bans the filing of time-barred lawsuits or initiating arbitration or any “other legal proceeding” to collect debts. That is, while previously (and as remains the case in most states) a debtor could invoke the running of the statute of limitations as an affirmative defense in a suit brought on the debt, the California law now bars the debt collector from bringing the suit at all.
Why it matters
These rules, while previously applicable only to debt buyers, are now applicable to debt collectors as well. Many entities exempt from the FDCPA may nonetheless be covered by California’s debt collection regime. As we previously reported, mortgage servicers, as one example, are usually exempt from the FDCPA but are not exempt from California’s debt collection regime, including the new bill. The regime is potentially applicable to all collectors, depending on circumstances, even those collecting debt they themselves originated. California law often sets the minimum standard for companies doing business nationwide. Look for plaintiffs’ law firms to attempt to take advantage of the new rule via class action lawsuits, particularly against entities that assume they are exempt without a careful review and analysis of their specific facts and circumstances.