Fair Debt Buying Practices Act

Summary: The Fair Debt Buying Practices Act would establish clear procedures, minimum documentation requirements, and affirmative obligations before a debt buyer can contact a debtor, initiate a lawsuit, or obtain and collect on a judgment.

[Bill drafting note: This model is a nearly verbatim version of the Model Fair Debt Buying Practices Act written by the Berkeley Law Policy Advocacy Clinic. Their original can be downloaded here. That model, in turn, is based on the Fair Debt Buying Practices Act enacted by the state of California in 2013 and available here.

SECTION 1. SHORT TITLE

This Act shall be called the “Fair Debt Buying Practices Act.”

SECTION 2. FINDINGS AND PURPOSE

(A) FINDINGS—the legislature finds that:

1)      Buyers purchase debt from original creditors and file a high volume of lawsuits, but are not subject to the same regulations and oversight as original creditors.

2)      Because of lax documentation requirements, debt buyers are generally not required to prove the identity of the debtor, the amount, or the validity of the original debt which can result in collection against the wrong consumer or for a debt that is not owed.

3)      Additionally, consumers are often unaware of their legal recourse often until their wages are already garnished, in some cases for the wrong amount, or against the wrong individual.

(B) PURPOSE—This law is enacted to curb some of the worst abuses in the debt buying industry, protecting consumers and making court proceedings more just.

SECTION 3. FAIR DEBT BUYING PRACTICES

After section XXX, the following new section XXX shall be inserted:

(A) DEFINITIONS—In this section:

1)   “Charged-off debt” means a debt that has been removed from a creditor’s books as an asset and treated as a loss or expense.

2) “Creditor” means a person or entity that extends consumer credit to a debtor.

3) “Debt” means any obligation or alleged obligation of a natural person to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.

4) “Debtor” means a natural person who owes a debt to another person or entity.

5) “Debt buyer” means a person or entity that is engaged in the business of purchasing or owning delinquent or charged-off debt for collection purposes, whether it collects the debt itself, hires a third party for collection, or hires an attorney-at-law for collection litigation.

6) “Good faith” means an honest, fair, and reasonable assessment of the legally relevant facts under this [act], and not necessarily limited only to those facts actually in possession. “Good faith” may require a fair and reasonable inquiry of others in possession of information known or believed to be relevant to the matter at issue.

7) “Statute of limitations” means the time period established by law in which an aggrieved party may bring a cause of action in judicial proceedings.

(B) STATUTE OF LIMITATIONS—After its expiration, the statute of limitations on a debt shall not be revived by the collection of a payment on an account, a discharge in a bankruptcy proceeding, an oral or written reaffirmation of the debt, or any other method.

(C) REQUIREMENTS BEFORE INITIATING CONTACT

1) A debt buyer shall not make any contact with a debtor in an attempt to collect a debt unless the debt buyer possesses documents evidencing all of the following:

a) That the debt buyer is the sole owner of the debt at issue or has authority to assert the rights of all owners of the debt, including the entire chain of sale from the original creditor to the debt buyer in sufficient form so as to reasonably identify each such buyer.

b) The name, last known address, date of birth, and last four digits of the Social Security Number of the debtor if these appeared on the original creditor’s records;

c) If there were changes in the interest rate fees or other charges associated with the debt since the inception of the original transaction, copies of all documents in a form sufficient to reasonably identify such changes and charges;

d) That the debt is not barred by the applicable statute of limitations. This provision requires documents evidencing the outstanding itemized balance on the date that the statute of limitations began to run; and

e) A copy of a contract or other document evidencing the debtor’s agreement to the debt. If the claim is based on debt for which no signed contract or agreement exists, an affidavit from the original creditor that no such signed contract or agreement exists, along with a copy of a document provided to the debtor while the account was active, demonstrating that the debt was incurred by the debtor. For a revolving credit account, the most recent monthly statements recording a purchase transaction or cash advance as well as last payment, shall be deemed sufficient to satisfy this requirement.

2) If the first communication is in writing, a debt buyer shall include in the first communication the documents identified in subsection (1) to the debtor without charge.

3) If the first communication is oral, a debt buyer shall:

a) Begin the phone call with the following statement:

I am calling from [debt buyer]. I am attempting to collect payments on a debt that I believe you owe from an account with [original creditor]. Within five days, I will send you copies of documents that I have to show that you owe the debt and that [debt buyer] has the right to collect payments from you. At any time, you can tell me if you think you have already paid the debt, if you think we have contacted the wrong person, or if there is any other reason why you might think you do not have to make payments on the debt.

b) Provide the documents identified in subsection (a) to the debtor without charge within five calendar days after the initial communication with the debtor.

4) If a debt buyer knows or has reason to know that the debtor cannot effectively communicate in English, the debt buyer shall make good faith efforts to determine the debtor’s primary language and shall communicate the written and oral requirements of subsection (2) and (3) in that language.

5) In the event of a conflict between the requirements of subsection (2) or (3) and federal law, so that it is impracticable to comply with both, the requirements of federal law shall prevail.

6) A debt buyer is in violation of this section if the debt buyer contacts or attempts to contact the debtor when the debt buyer knows or has reason to know that the debt is outside the applicable statute of limitations.

(D) REQUIREMENTS TO BRING SUIT

1) In an action brought by a debt buyer on a debt, the complaint shall allege all of the following:

a) That the plaintiff is a debt buyer;

b) The nature of the underlying debt and the consumer transaction or transactions from which it is derived, in a short and plain statement;

c) That the debt buyer is the sole owner of the debt at issue, or has authority to assert the rights of all owners of the debt;

d) The debt balance at charge-off from the original creditor and an itemization and explanation of the amount, nature, and reason for all pre-charge-off and post charge-off interest and fees, if any, imposed by the original creditor or any subsequent owners of the debt, including a statement of how the interest rate was calculated;

e) That the debt falls within the applicable statute of limitations, as evidenced by the date of default or the date of the last payment;

f) The name and an address of the original creditor at the time of charge off, and the original creditor’s account number associated with the debt. The original creditor’s name and address shall be in a form sufficient to reasonably identify the original creditor;

g) The name, last known address, and last four digits of the Social Security number of the debtor as they appeared in the original creditor’s records prior to the sale of the debt; and

h) The names and addresses of all persons or entities that owned the debt after the original creditor, including the plaintiff debt buyer and the date of each sale or transfer. The names and addresses shall be in a form sufficient to reasonably identify each such owner.

2) In an action brought by a debt buyer on a debt, the complaint shall include copies of all of the documents required under section (C)(1) and written communications, if any, made under sections (C)(3) and (C)(4).

2) The requirements of this section shall not be deemed to require the disclosure in public records of personal, financial, or medical information, the confidentiality of which is protected by any state or federal law.

3) In a case brought by a debt buyer involving collection of debt, if the defendant debtor appears for trial on the scheduled trial date and the plaintiff debt buyer either fails to appear or is not prepared to proceed to trial and the court does not find a good cause for continuance, the court may in its discretion dismiss the action with or without prejudice. Notwithstanding any other law, in this instance, the court may award the defendant debtor the costs of preparing for trial, including, but not limited to, lost wages and transportation expenses.

4) A debt buyer is in violation of this section if the debt buyer files suit, initiates arbitration, or commences other legal proceedings when the debt buyer knows or has reason to know that the debt is outside the applicable statute of limitations.

(E) REQUIREMENTS TO OBTAIN JUDGMENT

1) No default or other judgment shall be entered against a debtor unless copies of all documents described in section (D) have been submitted by the debt buyer to the court.

2) All documents described in section (D) must be accompanied by an admissible affidavit or testimony from the source of the documents establishing their authenticity.

3) An affidavit will not be admissible without, at a minimum, the inclusion of the following text:

I am a custodian of records [or other qualified representative] for [company] and have familiarity with the way in which records are kept for [company] in the ordinary course of business. I swear under penalty of perjury under the laws of [State] that I have personal knowledge that this record was created by [company] in the ordinary manner in which records are created and maintained.

4) No default or other judgment may be entered without an admissible affidavit or testimony from the individual charged with effectuating service of process detailing the good faith steps taken to serve the defendant. This shall include a statement that the address for the defendant set forth in the summons and complaint is the current address of the defendant or that a good faith effort was made to determine a current address for the defendant.

5) In any action on a debt, if a debt buyer plaintiff seeks a default or other judgment and has not complied with the requirements of this section, the court shall not enter a default judgment for the plaintiff and shall dismiss the action with or without prejudice.

(F) REQUIREMENTS TO COLLECT ON A JUDGMENT

1) At the time of levy, earnings withholding, or judgment lien, the levying officer shall serve a copy of the following on the judgment debtor, or the levying action is deemed invalid:

a) The writ of execution;

b) A notice of levy, earnings withholding, or judgment lien;

c) The form listing exemptions pursuant to [insert relevant statute];

d) The list of exemption amounts pursuant to [insert relevant statute];

e) The form that the judgment debtor shall use to make a claim of exemption

pursuant to [insert relevant statute];

f) The form that the judgment debtor shall use to provide a financial statement

pursuant to [insert relevant statute]; and

g) An affidavit of identity for the names of the debtor listed on the writ of execution.

2) For any designated employer of an employee whose earnings are to be withheld, the levying officer shall also serve a copy of the following, or the levying action is deemed invalid:

a) The original and one copy of the earnings withholding order; and

b) The form for the employer’s return.

3) For any designated financial institution of a customer whose assets are to be levied, the levying officer shall serve a copy of the following, or the levying action is deemed invalid:

a) The original and one copy of the order; and

b) The form for the financial institution’s return.

4) For any designated recording office in the county in which the debtor owns real estate that is to be placed under a judgment lien, the levying officer shall serve a copy of the following, or the levying action is deemed invalid:

a) The original and one copy of the order; and

b) The form for the recording office’s return.

5) The notice to the judgment debtor shall contain a statement that informs the debtor in simple terms of the nature of the levy, earnings withholding, or judgment lien; the right to an exemption; the procedure for claiming an exemption; and all of the following:

a) The specific amounts to be collected from the judgment debtor, and a statement that these amounts should be paid over to the levying officer for transmittal to the person specified in the order in payment of the judgment described in the order;

b) The manner of computing the specific amounts;

c) A statement that the judgment debtor shall be able to keep more or all of the specific amount to be collected if the judgment debtor proves that they are necessary for the support of the judgment debtor or the judgment debtor’s family supported in whole or in part by the judgment debtor; and

d) A statement that, if the judgment debtor wishes a court hearing to prove that amounts should not be withheld from the judgment debtor because they are necessary for the support of the judgment debtor or the judgment debtor’s family supported in whole or in part by the judgment debtor, the judgment debtor shall file with the levying officer an original and one copy of the judgment debtor’s claim of exemption and an original and one copy of the judgment debtor’s financial statement.

6) Service upon the judgment debtor under this section is limited to in-person service.

7) The levying officer must be certified pursuant to the standards of [insert relevant statute].

(G) ENFORCEMENT

1) In the case of an action brought by an individual or individuals, a debt buyer that violates any provision of this section with respect to any person shall be liable to that person in an amount equal to the sum of the following:

a) Any actual damages sustained by that person as a result of the violation; and

b) Statutory damages in an amount as the court may allow, which for each violation shall not be less than [five hundred dollars ($500)] nor greater than [ten thousand dollars ($10,000)].

2) Notwithstanding any other provision of law, in the case of a class action, a debt buyer that violates any provision of this section shall be liable for all actual and statutory damages as provided in subsection (1). If the court finds that the debt buyer engaged in a pattern and practice of violating any provision of this section, the court may award additional damages to the class.

3) The Attorney General has the authority to investigate complaints, undertake periodic reviews of compliance of covered entities, and bring actions to enforce this section.

4) In the case of any successful action to enforce liability under this section, the court shall award costs of the action together with reasonable attorney’s fees.

5) In determining the amount of liability, the court shall consider, among other relevant factors, the frequency and persistence of noncompliance by the debt buyer, the nature of the noncompliance, the resources of the debt buyer, and the number of persons adversely affected.

6) An action to enforce any liability created by this section shall be brought within three years from the date of the last violation.

7) Any waiver of the provisions of this section is contrary to public policy, and is void and unenforceable.

8) Unless otherwise expressly provided, the provisions of this section are cumulative to each other and to the remedies, requirements, and penalties of other applicable state and federal laws.

SECTION 4. SEVERABILITY

The provisions of this Act shall be severable, and if any phrase, clause, sentence or provision is declared to be invalid or is preempted by federal law or regulation, the validity of the remainder of this Act shall not be affected.

SECTION 5. EFFECTIVE DATE

This Act shall take effect on XXXX 1, 2016

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