For many years it was unclear whether mortgage debt was covered under the California Rosenthal Fair Debt Collection Practices Act (the “Rosenthal Act”), which is California’s corollary to the federal Fair Debt Collection Practices Act (“FDCPA”). That issue was resolved on October 7, 2019, when California Governor Gavin Newsom signed into law legislation that expressly includes “mortgage debt” within the Rosenthal Act’s definition of “consumer credit.” Senate Bill 187 (“SB 187”), which is effective January 1, 2020, amends the Rosenthal Act to expressly apply to debt collection activities involving residential mortgage loans.
SB 187 also amends the Rosenthal Act so that it now includes attorneys in the definition of “debt collector.” Until the amended Rosenthal Act goes into effect, attorneys are excluded from that definition.
Express Applicability to Mortgages
Debt collection activities in California generally are subject to the Rosenthal Act if those activities are performed by a debt collector in connection with “consumer debt” or “consumer credit.” Those terms are defined under the statute to mean “money, property or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction.”¹ SB 187 retains this definition, but adds “mortgage debt” to the definition of “consumer debt.”
SB 187 states that adding “mortgage debt” to the definition of “consumer debt” is not a change in law, but is instead declaratory of existing law. It is not clear from the legislative history to SB 187 how the current legislature determined the intent of the legislature that enacted the Rosenthal Act. In fact, prior to enactment of SB 187, there were conflicting federal district court rulings on this issue. That conflict was resolved somewhat in 2018, when a state appellate panel found that a mortgage servicer was subject to the Rosenthal Act.² It is noteworthy that the Rosenthal Act (both before and after the amendments) is broader than the FDCPA, as loan servicers collecting on debt they acquired while it was current generally are exempt from the FDCPA, but are not exempt under the Rosenthal Act.
The Legislature appears to have premised its position that the addition of “mortgage debt” to the definition of “consumer debt” is merely a clarification of existing law on the Rosenthal Act’s broad definition of “consumer credit transaction” as “a transaction between a natural person and another person in which property, services, or money is acquired on credit by that natural person from such other person primarily for personal, family, or household purposes.”
It is not uncommon for the California legislature to enact legislation that purports to merely clarify existing law, as there are a number of historic examples of “clarifying” legislation. Some of this has resulted in litigation challenging on constitutional or other grounds the retroactive application of the enacted amendments. Servicers should not be surprised if a government agency or private plaintiffs seek to apply the amended Rosenthal Act retroactively.
In practice, many mortgage loan servicers have complied with the Rosenthal Act, notwithstanding the conflict among federal district courts concerning its application. Compliance with the FDCPA will result in compliance with much of, but not the entire, Rosenthal Act (although the Rosenthal Act expressly provides that the mini-Miranda and debt validation notice provisions of the FDCPA do not apply to original creditors).
Repeal of Attorney Exclusion
The version of the Rosenthal Act in effect prior to SB 187’s effective date defines a “debt collector” to mean “any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection. The term includes any person who composes and sells, or offers to compose and sell, forms, letters, and other collection media used or intended to be used for debt collection, but does not include an attorney or counselor at law.”³
SB 187 does not materially change the definition of “debt collector,” with the notable exception that it eliminates the exclusion for “an attorney or counselor at law.” As a result, any attorney relying on this language as an “out” from the Rosenthal Act’s substantive requirements may want to reassess whether and which of the statute’s requirements apply to the attorney’s California activities.
SB 187 Does Not Provide for Licensing
Unlike most other state collection agency laws, the Rosenthal Act does not impose a licensing or registration obligation on collection agencies or debt collectors. SB 187 does not change that fact.