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



Current Version: 03/25/21 - Amended Assembly Compare Versions information image


AB1405:v98#DOCUMENT

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 amend Section 1750 of the Civil Code, relating to consumer protection. 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. Consumers Legal Remedies Act. 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. Existing law authorizes a consumer who suffers any damage as a result of the use or employment by any person of these methods, acts, or practices to bring an action to recover or obtain specified remedies.
This bill would make nonsubstantive changes to the provision naming the Consumers Legal Remedies Act. 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 services to assist a consumer with debt settlement services, as defined, 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, and would prescribe requirements for the contents of these contracts.
This bill would prohibit certain abusive or deceitful practices in connection with debt settlement provider activities, some of which would apply to a debt settlement service provider based on its knowledge 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 the application of its provisions, excluding certain parties.
This bill would create a civil cause of action for 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 of not more than $5,000, compensatory damages, reasonable attorney’s fees and costs, and injunctive relief.
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 services to assist a consumer with debt settlement services, modifying the terms of any extension of credit, or 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.
(b) “Debt settlement services” means any of the following:
(1) Offering to provide 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.
(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.
(f) “Creditor” means the person to which the consumer owes the debt, whether that person originates the debt or is assigned or has purchased the debt for collection.
(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, misleading, and deceptive in connection with providing debt settlement services if the act or practice consists any of the following:
(1) Make, or permit another entity to publicly make on behalf of the debt settlement provider, a statement or representation that is false, deceptive, or misleading.
(2) Post directly, or indirectly cause 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 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 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 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 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 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 may still try to collect.
(ii) Creditors may sue.
(iii) The consumer’s wages may be garnished or bank accounts levied.
(iv) The consumer’s credit score or credit rating may be negatively impacted.
(K) The number of months estimated to settle 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.
(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.
(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.
(D) Shall provide, in terms easily understood by an unsophisticated 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 address of the debt settlement provider and of the consumer.
(F) Shall provide a telephone number at which the consumer may speak 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 debt settlement provider for distribution to the creditors.
(c) A debt settlement provider shall not engage in abusive or deceitful acts or practices when providing debt settlement services. Without limiting the general application of the foregoing, an act or practice is abusive or deceitful in connection with providing debt settlement services if the act or practice consists 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.
(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 debt settlement company servicing the same consumer is providing debt settlement services in a manner that does any of the following:
(A) For a debt settlement provider that offers services to assist a consumer with debt settlement, modifying the terms of any extension of credit, failing to comply with the requirements for proraters under Section 12314 of the Financial Code.
(B) Fails 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.
(C) Fails 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) 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.
(B) The notice described in subparagraph (A) shall be deemed effective immediately upon being sent.
(C) Upon notice of request for cancellation of the contract, the debt settlement provider shall immediately cancel the contract and refund to the consumer all unearned money held in the consumer’s settlement account within three business days along with a detailed accounting.
(2) If a consumer is sued by a creditor for a debt that is included in the contract with the debt settlement provider, the debt settlement provider’s contract with the consumer shall be void, and the debt settlement provider shall return to the consumer all charges and payments, excluding payments distributed to a creditor, received from the consumer for all debts placed with the debt settlement provider for debt settlement services.

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 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 of the following:
(1) Civil penalties 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.
(2) Compensatory damages.
(3) Reasonable attorney’s fees and costs.
(4) Injunctive relief.
(c) An action brought under this title shall be commenced within four years after the latest 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.

SECTION 1.Section 1750 of the Civil Code is amended to read:
1750.

This title shall be known, and may be cited, as the Consumers Legal Remedies Act.