Bill Will Help Protect Consumers from Unfair Debt Collection Practices
SACRAMENTO, CA — By a unanimous vote, the California Senate passed legislation today that will strengthen state oversight of the debt buying industry and protect consumers from unfair debt collection practices. SB 233, authored by Senator Mark Leno, was passed with bipartisan support and requires debt buyers to provide consumers and the courts with documentation to prove that a debt is actually owed.
“Our current debt collection system is broken,” said Suzanne Martindale, staff attorney for Consumers Union, the policy and advocacy arm of Consumer Reports. “Current law leaves consumers vulnerable to being harassed for debts that they may have already paid off or that don’t even belong to them. This bill will protect consumers by making debt buyers prove they have a legitimate claim when they try to collect past debts.”
Tens of thousands of Californians are contacted every year by debt buyers they have never done business with, for debts that may be old or in an amount that doesn’t match the consumer’s memory or records. The debt may even be owed by someone else or the result of identity theft. Consumers Union’s 2011 report issued with the East Bay Community Law Center detailed how debt buyers are filing an increasing number of lawsuits against consumers even though often they don’t have proof to back up their claims.
Debt buyers purchase large portfolios of consumer debt from the original creditor or secondary debt buyers for pennies on the dollar. The buyers hope to make a profit by collecting a small percentage of those accounts and then resell the portfolio to another debt buyer who then restarts efforts to collect. Some debt buyers have little more than a robo-signed affidavit to back up their claims in court.
In January, the Federal Trade Commission issued a report that found debt buyers didn’t verify alleged debts in half of the cases studied by the agency. The FTC found that consumers disputed an estimated one million debts each year but that debt buyers only verified 500,000 of those disputed debts.
Under SB 233, a debt buyer must possess essential information before collecting, and must produce authenticated documents before obtaining judgment to show the debt buyer is suing the right person, for the right amount, on a debt it can legally recover. The bill also requires debt buyers to show how the amount of debt was calculated, including the original amount and the nature and type of credits, interest and other charges. In most cases, consumers currently don’t get this protection when sued on a debt.
“This bill not only protects consumers, but it will level the playing field for reputable collectors and relieve the courts of unsubstantiated lawsuits,” said Martindale.
Contact:
Michael McCauley, Consumers Union, 415.431.6747 ext 126 (office)/415.902.9537 (cell) or mmccauley@consumer.org
