California Requires New Notices Before Attempting to Collect Time-Barred Debt

[co-author: Andrew Oberg]*

On September 5, California Governor Jerry Brown signed a bill amending the state’s debt collection law to place additional restrictions on the collection of time-barred debts. The new law, which goes into effect in 2019, requires debt collectors to provide notices to debtors when attempting to collect on time-barred debt and prohibits them from bringing suits to recover such debt. California defines a “debt collector” as “any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection.”

Notice Requirement

Section 1788.14 of the California Civil Code prohibits debt collectors from engaging in specific behaviors while collecting consumer debt. The new law amends this section by requiring debt collectors to provide notices when collecting on time-barred debt. Specifically, if the debt is not past the date for obsolescence as set forth in section 605(a) of the federal Fair Credit Reporting Act (15 U.S.C. § 1681c), the following notice must be included in the first written communication provided to the debtor after the debt has become time-barred:

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 past the date for obsolescence, the following notice must be included in the first written communication provided to the debtor after the date for obsolescence:

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, and we will not report it to any credit reporting agency.

Statute of Limitations

Section 337 of the Code of Civil Procedure prescribes the period for commencing various actions. Per the new law, when the four-year limitations period has run, a debt collector cannot bring a suit or initiate arbitration or other legal proceedings to collect the debt.

Pepper Points

• California has created new notice requirements when attempting to collect time-barred debt and has prohibited debt collectors from bringing suit to collect it.

• California debt collectors must make sure they have appropriate data integrity related to the debts they attempt to collect and those they purchase to ensure that they know the age of the debt and can comply with the new requirements accordingly.