April 2, 2024
The California legislature is considering Senate Bill 1286, a bill that would expand the scope of the state's debt collection law to cover small business debts. The existing law, the Rosenthal Fair Debt Collection Practices Act ("RFDCPA"), covers only collection of consumer debts. Unlike the federal Fair Debt Collection Practices Act and many state debt collection laws, the RFDCPA applies to a person collecting its own debts in its own name as well as to a person collecting debts on behalf of another or a person collecting its own debts under a different name. As a result, this legislation would impact providers of small business financing that service and collect their own transactions.
SB 1286 defines the term "small business" to mean an independently owned and operated business not dominant in its field of operation with its principal office in California, its officers domiciled in California, 100 or fewer employees (including affiliates' employees), and average annual gross receipts of $15 million or less over the past three years. The bill defines the term "small business credit transaction" to mean a transaction where a small business or a small business owner obtains money, property, or services on credit primarily for purposes related to the business's activities. Additionally, it defines the terms "small business credit" and "small business debt" to mean money, property, or their equivalent due or owing or allegedly due or owing from a natural person due to a small business credit transaction. This definition is broad enough to encompass amounts due under a sales-based financing transaction as well as a traditional loan.
The RFDCPA includes provisions closely resembling provisions of the federal FDCPA. For example, the RFDCPA prohibits certain types of threats and harassment of debtors. The RFDCPA also requires a debt collector to provide certain information to the debtor, such as the amount of the debt and the name of the creditor. However, the RFDCPA also includes provisions distinct from anything in the FDCPA. For example, the RFDCPA prescribes specific disclosures that a debt collector must provide if it attempts to collect a time-barred debt. In addition, the RFDCPA prohibits attempting to collect a debt by means of judicial proceedings outside the county in which the debtor has incurred the debt or the county in which the debtor resides.
A violation of the RFDCPA is subject to the same remedies as a violation of the 2001 version of the FDCPA, including a lawsuit by the debtor. Like the FDCPA, the RFDCPA provides a defense for a debt collector that can show that a violation was the result of a bona fide error and occurred despite procedures designed to prevent such an error. If SB 1286 becomes law, it will take effect on January 1, 2025.