California Modifies Debt Collection Provisions

On September 5, 2018, the California governor signed into law a bill that requires debt collectors to notify consumers when a debt becomes time barred.  The law is effective January 1, 2019.

The law now prohibits a debt collector sending a collection letter to a consumer on a time-barred loan without providing one of two notices on the “first written communication” after the loan becomes time-barred.  “First written communication” is defined by the law as the first communication sent to the debtor in writing or by facsimile, email, or other similar means.

Which of the two notifications must be sent by debt collectors depends on the age of the debt.

If the debt is older than seven years, and therefore may not be reported to credit agencies, the debt collector must provide consumers the following notification: “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.”

For time-barred debts seven years or younger, which can be reported to credit agencies, debt collectors must provide consumers the following notification: “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.”

The law also includes a four-year statute of limitations on the collection of debt by specifically prohibiting a debt collector from initiating a lawsuit, an arbitration, or other legal proceeding to collect the debt after the end of the four-year period in which the action must have commenced.

The text of the bill can be found here.