Debt Collection: Understanding California’s Proposed Expansion of the RFDCPA

California Senate Bill 1286, currently under consideration in the state legislature, could bring notable changes to business lenders, according to a recent analysis by Hudson Cook, LLP published on JD Supra. The proposed legislation aims to expand the scope of the Rosenthal Fair Debt Collection Practices Act (RFDCPA) to include certain commercial-purpose debts, a development that would affect small business financing providers.

Points of interest include:

1. Expanded Coverage: The bill would extend the RFDCPA's application to "covered commercial credit" and "covered commercial debt," encompassing transactions up to $500,000 that are primarily for non-personal purposes.

2. Broader Impact: Unlike the federal Fair Debt Collection Practices Act, the RFDCPA applies to entities collecting their own debts. This means small business financing providers who service and collect their own transactions would be subject to the new regulations.

3. Inclusive Definition: The proposed legislation's definition of covered transactions includes sales-based financing and leases, in addition to traditional loans.

4. Guarantor Inclusion: The bill would define "debtor" to include guarantors of covered commercial credit transactions.

5. Additional Requirements: If passed, the law would impose RFDCPA-style restrictions on debt collection practices for these commercial debts, including prohibitions on certain types of threats and harassment, as well as specific disclosure requirements.

6. Potential Liabilities: Violations of the expanded RFDCPA could result in lawsuits from debtors and statutory damages ranging from $100 to $1,000 per violation.

For business financing companies operating in California, the implications of this bill are important to consider. They would need to review their collection practices for transactions under $500,000, regardless of whether they originated the debt or are collecting on behalf of others. The inclusive definition of covered transactions means that many businesses owing money could potentially have rights under the amended RFDCPA.

If passed, the law could take effect on January 1, 2025.