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AB-1405 Debt settlement practices.(2021-2022)

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Date Published: 05/05/2021 09:00 PM
AB1405:v96#DOCUMENT

Amended  IN  Assembly  May 05, 2021
Amended  IN  Assembly  April 20, 2021
Amended  IN  Assembly  March 25, 2021

CALIFORNIA LEGISLATURE— 2021–2022 REGULAR SESSION

Assembly Bill
No. 1405


Introduced by Assembly Member Wicks

February 19, 2021


An act to add Title 1.6C.17 (commencing with Section 1788.300) to Part 4 of Division 3 of the Civil Code, relating to consumer debt.


LEGISLATIVE COUNSEL'S DIGEST


AB 1405, as amended, Wicks. Debt settlement practices.
Existing law regulates various practices related to debt, including its sale and collection. Existing law, for purposes of debt collection, defines “consumer debt” as, among other things, money due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction. Existing law, the Check Sellers, Bill Payers and Proraters Law, prohibits a person from engaging in the business of acting as a prorater without first obtaining a license from the Commissioner of Financial Protection and Innovation and defines a “prorater” as, among other things, a person who, for compensation, engages in the business of receiving money for the purpose of distributing the money among creditors in payment or partial payment of the obligations of the debtor. Under existing law, the Consumers Legal Remedies Act, specified unfair methods of competition and unfair or deceptive acts or practices undertaken by any person in a transaction intended to result or that result in the sale or lease of goods or services to any consumer are unlawful.
This bill would enact the Fair Debt Settlement Practices Act. The bill would define “debt settlement provider” as a person who, for compensation and on behalf of a consumer, provides debt settlement services, as defined, provides services to assist a consumer with debt settlement services, as defined, management or debt settlement, or modifying the terms of any extension of credit, or a person who accepts or maintains deposits of money for the purpose of distributing the money or evidences of money among creditors in payment or partial payment of the obligations of the consumer.
This bill would prohibit a debt settlement provider from engaging in false, deceptive, or misleading acts or practices, as specified, when providing debt settlement services. The bill would require a debt settlement provider to provide a consumer with certain disclosures along with an unsigned copy of the written contract that the debt settlement provider and the consumer would enter. The bill would prescribe requirements for the contents of these contracts.
This bill would prohibit certain abusive or deceitful unfair, abusive, or deceptive practices in connection with debt settlement provider activities, some of which would apply to a debt settlement service provider based on its knowledge of assistance or facilitation of the activities of another debt settlement company regarding a consumer to whom they both provide services. The bill would authorize a consumer to terminate a contract for debt settlement services at any time without a fee or penalty of any sort by notifying the debt settlement provider. The bill would specify requirements the debt settlement provider to take once the notice of termination is received, including immediately providing a refund to the consumer of all unearned money held in the consumer’s settlement account. If a debt settlement provider receives notice of a lawsuit on an enrolled debt from any person other than the consumer, the bill would require the debt settlement provider to immediately forward that notice to the consumer, as provided. The bill would specify the application of its provisions, excluding certain parties.
This bill would create a civil cause of action for a authorize a consumer who suffers damage as a result of the failure of a debt settlement provider to comply with its requirements and would authorize the award of a civil penalty to bring a civil action for violation of these provisions. The bill would authorize statutory damages of not more than $5,000, compensatory actual damages, reasonable attorney’s fees and costs, and injunctive relief. relief, and other relief the court deems proper. The bill would require that a court award costs of the action and reasonable attorney’s fees for any successful cause of action. The bill would specify that reasonable attorney’s fees may be awarded to a prevailing debt settlement provider upon a finding by the court that the consumer’s prosecution of the cause of action was not in good faith. The bill would specify that a debt settlement provider would not be civilly liable under specified circumstances. The bill would require a cause of action to be brought within 4 years of specified dates. The bill would provide that a waiver of the provisions is contrary to public policy and that its provisions are severable.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: NO   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Title 1.6C.17 (commencing with Section 1788.300) is added to Part 4 of Division 3 of the Civil Code, to read:

TITLE 1.6C.17. Fair Debt Settlement Practices

CHAPTER  1. General Provisions

1788.300.
 This title may be cited as the Fair Debt Settlement Practices Act.

1788.301.
 For purposes of this title:
(a) “Debt settlement provider” means a person who, for compensation and on behalf of a consumer, provides does any of the following:
(1) Provides services to assist a consumer with debt settlement services, modifying services.
(2) Provides services to assist a consumer with debt management or debt settlement, or modifying the terms of any extension of credit, or who accepts or credit.
(3) Accepts or maintains deposits of money for the purpose of distributing the money or evidences of money among creditors in payment or partial payment of the obligations of the consumer.
(b) “Debt settlement services” means any of the following:
(1) Offering to provide Providing advice, or offering to act or acting as an intermediary, including, but not limited to, offering debt negotiation, debt reduction, or debt relief services between a consumer and one or more of the consumer’s creditors, if the primary purpose of that advice or action is to obtain a settlement for less than the full amount of the debt.
(2) Advising, encouraging, assisting, or counseling a consumer to accumulate funds in an account for future payment of a reduced amount of debt to one or more of the consumer’s creditors.
(3) Engaging in the business of a prorater as described in Division 3 (commencing with Section 12000) of the Financial Code. Code for the purpose of negotiating, settling, or modifying the terms of a consumer’s debt.
(c) “Settlement account” means a depository account used for the purpose of holding funds of a consumer to be distributed to a creditor in the event of a settlement of a consumer’s debt with the creditor.
(d) “Consumer” means a person who is allegedly legally responsible for a debt.
(e) “Person” means a natural person or entity. entity, whether a corporation, partnership, association, trust, limited liability company, cooperative, or other organization.
(f) “Creditor” means the person to which the consumer owes the debt, whether that person originates who originated the debt or is assigned assigned, or has purchased the debt for collection. collection, a debt for which a consumer is allegedly legally responsible.
(g) “Debt” means money, whether in principal, interest, fees, or other charges, which is due or owing or alleged to be due or owing from a natural person to another person and incurred primarily for personal, family, or household purposes.

1788.302.
 (a) A debt settlement provider shall not engage in false, deceptive, or misleading acts or practices when providing debt settlement services. Without limiting the general application of the foregoing, an act or practice is false, deceptive, or misleading, in connection with providing debt settlement services, if the act or practice consists of any of the following:
(1) Make, Making or permit permitting another entity to publicly make on behalf of the debt settlement provider, a statement or representation that is false, deceptive, or misleading.
(2) Post Posting directly, or indirectly cause causing to be posted, an online review or ranking on an internet website if the debt settlement provider, or its agent, provided anything of value in exchange for favorable treatment in that review or ranking.
(3) Commit Committing the knowing omission of any material information.
(b) A debt settlement provider shall provide to the consumer the following disclosures along with an unsigned copy of the written contract proposed to be entered into between the debt settlement provider and the consumer that complies with this section no less than three calendar days prior to the execution of that contract by the consumer. A fully executed copy of the contract shall be delivered to the consumer by the debt settlement provider immediately after the consumer executes it.
(1) Each contract shall be preceded by a cautionary disclosure that contains all of the following information in conspicuous boldface type that is not smaller than 14-point Arial typeface:
(A) There is no guarantee that any particular debt or all debt of the consumer’s enrolled debts will be reduced or eliminated.
(B) The consumer is still required to pay all bills unless the creditor states otherwise.
(C) Specific results cannot be predicted or guaranteed, and the debt settlement provider cannot require a creditor to negotiate or settle a debt.
(D) A debtor consumer may cancel the debt settlement contract at any time.
(E) Debt settlement services may not be suitable for all individuals.
(F) Bankruptcy may provide an alternative to debt settlement.
(G) Failing to timely pay debts on time may adversely affect the consumer’s credit rating or credit scores.
(H) Canceled debt generally is counted as income under federal tax law, and the debtor consumer may have to pay income taxes on the amount of forgiven or reduced debt.
(I) The sources of income that are exempt from collection under California law.
(J) If the consumer stops paying any creditor, any of the following may occur:
(i) Creditors The creditors may still try to collect.
(ii) Creditors The creditors may sue.
(iii) The creditor may garnish the consumer’s wages may be garnished or levy the consumer’s bank accounts levied. account or accounts, or both garnish the consumer’s wages and levy the consumer’s bank account or accounts.
(iv) The consumer’s credit score or credit rating may be negatively impacted.
(K) The number of months estimated to settle enter into settlement agreements that completely resolve all debts.
(L) All conditions that the consumer must satisfy before the debt settlement provider will make a settlement offer to a creditor or take other action with respect to the creditor. creditor.
(2) Each contract:
(A) Shall list each debt to be serviced, including, for each debt, the name of the creditor and the total amount of the debt. The total amount of the debt may be based on either a billing statement for the debt or information in the consumer’s consumer report, as that term is defined under the federal Fair Credit Reporting Act (15 U.S.C. Sec. 1681 et seq.). The billing statement or consumer report must have been issued no more than 30 calendar days earlier.
(B) Shall provide the estimated period of time it will take the consumer to complete the payments required by the contract.
(C) Shall provide the approximate number and amount of installments required to pay the debts in full. full after they have all been settled.
(D) Shall provide, in terms easily understood by an unsophisticated the least sophisticated consumer, the method that the debt settlement provider will use to calculate the charges and fees for debt settlement services.
(E) Shall provide the name and mailing address of the debt settlement provider and of the consumer.
(F) Shall provide a telephone number at which the consumer may speak speak, during normal business hours, with a live representative of the debt settlement provider during normal business hours who is able to access information about the consumer’s account.
(G) Shall be provided to the consumer in English and in the language in which it was negotiated or in which the debt settlement services were offered, if that language is one of the languages set forth in Section 1632.
(H) Shall not require a compulsory agreement with any other party.
(I) Shall not be entered into by a consumer who is not already allegedly legally responsible for all the debt that will be enrolled in the debt settlement services. In the event multiple consumers engage in a single contract for debt settlement services, if any consumer is not proficient in English and speaks a language set forth in Section 1632, a translated copy of the disclosures and contract shall be provided to the consumer in that language and in a manner that complies with this subdivision.
(J) Shall not be effective until a consumer has made a payment to the for debt settlement provider for distribution to the creditors. services.
(c) A debt settlement provider shall not engage in abusive unfair, abusive, or deceitful deceptive acts or practices when providing debt settlement services. Without limiting the general application of the foregoing, in connection with providing debt settlement services, an act or practice is abusive or deceitful in connection with providing debt settlement services unfair, abusive, or deceptive if the act or practice consists of any of the following:
(1) Failing to comply with the requirements for proraters under Section 12323 of the Financial Code.
(2) Offering, paying, or giving any cash, fee, gift, bonus, premium, reward, or other compensation to any person for referring any prospective consumer to the debt settlement provider. “Referring” does not mean providing a hyperlink in an advertisement on an internet website or in a software application.
(3) Accepting any cash, fee, gift, bonus, premium, reward, or other compensation from any person other than the consumer in connection with debt settlement services
(4) The following subparagraphs apply to a debt settlement provider that engages in the following, or that does not itself engage in the following practices if it knows or has reason to know that another assists or facilitates debt settlement company servicing the same consumer is providing debt settlement services in a manner that does either of the following:
(A) Fails Failing to distribute a statement of accounting to a consumer at least once a month while the contract is in effect, as well as on or before the fifth business day after a consumer requests a statement of accounting.
(B) Fails Failing to include in any statement of accounting the following information to the extent applicable:
(i) The amount of money that the consumer has deposited into the consumer’s settlement account and all withdrawals starting from the outset of the contract.
(ii) The amounts, dates, and creditors associated with each settlement obtained by the debt settlement provider on behalf of the consumer.
(iii) The fees that the debt settlement provider has billed and collected in connection with each of the debts settled.
(iv) The amount of money that the consumer holds in the consumer’s settlement account.
(v) With respect to any debt settled by the debt settlement provider on behalf of the consumer, all of the following information:
(I) The total amount of money that the consumer paid to the creditor to settle the debt.
(II) The amount of the debt at the time the debt settlement provider and the consumer entered into the contract.
(III) The amount of the debt at the time the creditor agreed to settle the debt.
(IV) The amount of compensation that the debt settlement provider received, or may receive, to settle the debt.
(d) (1) A consumer may terminate a contract for debt settlement services at any time without a fee or penalty of any sort by notifying the debt settlement provider in writing, electronically, or orally.
(2) The notice described in paragraph (1) shall be deemed effective immediately upon being sent.
(3) Upon notice of request for cancellation of the contract, the debt settlement provider shall immediately shall do all of the following:
(A) Immediately cancel the contract and refund contract.
(B) Immediately refund to the consumer all unearned money held in the consumer’s settlement account within account.
(C) Provide, within three business days along with days, a detailed accounting. accounting of the amount refunded and amount retained by the debt settlement provider.
(D) Provide within three business days copies of all documents, notices, or other communications it has received from any creditor on behalf of the consumer.
(4) The items in subparagraphs (C) and (D) of paragraph (3) shall be sent by United States mail or by electronic means reasonably calculated to reach the consumer.
(e) If a debt settlement provider receives notice of a lawsuit on an enrolled debt from any person other than the consumer, the debt settlement provider shall immediately forward that notice to the consumer, either by United States mail or by electronic means reasonably calculated to reach the consumer.

CHAPTER  2. Application of the Fair Debt Settlement Practices Act

1788.303.
 This title applies to persons providing debt settlement services and persons purporting to engage in debt settlement services, regardless of whether or not these persons actually provide those services.

1788.304.
 This title does not apply to any of the following:
(a) Subdivisions (a), (b), and (d) to (l), inclusive, of Section 12100 of the Financial Code.
(b) Any nonprofit business organization that is certified as tax-exempt by the Internal Revenue Service and that does not receive compensation from the consumer for providing debt settlement services.
(c) Attorneys and law firms that meet all of the following criteria:
(1) The services rendered by the attorney or law firm do not result in charges or costs regulated by this title and the attorney or law firm does not charge for services regulated by this title.
(2) The fees and disbursements are not charges or costs shared, directly or indirectly, with a debt settlement provider.
(3) Any of the following is true:
(A) The attorney or law firm is retained by a consumer for the purpose of legal representation in consumer debt litigation.
(B) The attorney or law firm provides debt settlement services pursuant to representation by retainer for a debt collection matter that does not involve consumer debt.
(C) The attorney or law firm is retained by the consumer primarily for purposes other than the settlement of consumer debt.

CHAPTER  3. Enforcement of the Fair Debt Settlement Practices Act

1788.305.
 (a) A debt settlement provider and persons engaged in debt settlement services shall comply with this title.
(b) Any consumer who suffers damage as a result of the failure of a debt settlement provider or a person engaged in debt settlement services to comply with this title may bring a civil action against the A consumer may bring a cause of action against a debt settlement provider or the person engaged in debt settlement services. A consumer who brings a civil action pursuant to this section may be awarded all for violation of any provision of this title in order to recover or obtain any of the following:
(1) Damages in an amount equal to the sum of the following:

(1)Civil penalties

(A) Statutory damages in an amount to be determined by the court of no less than one thousand dollars ($1,000) and no more than five thousand dollars ($5,000) per violation. violation of this title.

(2)Compensatory damages.

(B) Any actual damages sustained by the consumer as a result of the violation.

(3)Reasonable attorney’s fees and costs.

(4)

(2) Injunctive relief.
(3) Any other relief that the court deems proper.
(c) (1) In the case of any successful cause of action under this section, the court shall award costs of the action, together with reasonable attorney’s fees as determined by the court.
(2) Reasonable attorney’s fees may be awarded to a prevailing debt settlement provider upon a finding by the court that the consumer’s prosecution of the cause of action was not in good faith.
(d) A debt settlement provider shall have no civil liability for damages under this section if the debt settlement provider shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error, and occurred notwithstanding the maintenance of procedures reasonably adopted to avoid any error.

(c)An action brought

(e) A cause of action brought under this title section shall be commenced brought within four years after the latest of the latter of the following dates:
(1) The last payment by or on behalf of the consumer pursuant to the contract.
(2) The date on which the consumer discovered or reasonably should have discovered the facts giving rise to the consumer’s claim.

1788.306.
 Any waiver of the provisions of this title is contrary to public policy, and is void and unenforceable.

1788.307.
 The provisions of this title are severable. If any provision of this title or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.