AB 1294: Debt Collection and Identity Theft
by Scott
J. Hyman and Laura
Greco
This article appeared in the State
Bar of California's Business Law News, Volume XXIII,
Issue 4, 2003. Reprinted by permission of the State
Bar of California.
In the
2003 through 2004 Regular Session, the California Legislature
added debt collection regulation to the milieu of identity theft
legislation that it has passed over the last two years. Assembly
Bill No. 1294, codified as Civil Code section 1788.18, amends
the Rosenthal Fair Debt Collection Practices Act to regulate
the activities of third-party debt collectors confronted with
debtors claiming to be victims of identity theft. Assembly Bill
No. 1294 resulted from bilateral negotiations between consumer
and industry advocates, and gives guidance to both victims of
identity theft (on how to stop collection activity) and to third-party
debt collectors (on when they need to cease collections). The
legislation attempts to fill a loophole in prior identity theft
legislation that required a purported victim to establish that
he or she was a victim of identity theft by filing an action
or cross-complaint. (Civ. Code, §1798.93.)
Assembly Bill No. 1294 recognizes the
balance between true victims of identity theft and the right
of creditors to collect valid debts from those who would lodge
spurious identity theft claims. In order to trigger a cessation
of collection activities by the debt collector, the consumer
must provide (1) a copy of a police report filed by the debtor
alleging that he or she is a victim of identity theft crime,
and (2) a written statement that the debtor claims to be the
victim of identity theft with respect to the specific debt being
collected by the debt collector. (Civ. Code, §1788.18,
subd. (a).) The debtor can comply with the written statement
requirement in three ways. First, the debtor can complete a
pre-approved reporting form for victims of identity theft, which
can be provided by the California Office of Privacy Protection
or the FTC.(1) Second, according to the
legislative history, the debtor can use a form prepared by the
debt collector. Finally, the debtor can provide a written certification
containing specified information and documentation. (Civ. Code,
§ 1788.18, subd. (b).) If the debtor submits a false certification
that declares as true any material matter that he or she knows
to be false, they can be prosecuted for a misdemeanor. (Civ.
Code, § 1788.18, subd.(b)(3).) The legislative history
indicates that the penalty of perjury, a felony, was replaced
with the misdemeanor violation. (Sen. Com. on Judiciary, comments
on Assem. Bill No. 1294 (2003-2004 Reg. Sess.) as amended June
11, 2003 .)
Under Assembly Bill No. 1294, third-party
debt collectors who merely receive oral notice of identity theft
are not, by virtue of the oral notice, required to cease collection
activities. However, the debt collector must notify the debtor,
either orally or in writing, that the debtor's claim must be
in writing, and must provide all the information required in
subdivision (a). (Civ. Code, § 1788.18, subd. (c).) If
a debtor gives written notification that he or she is a victim
of identity theft, but omits any of the required information,
the debt collector must give written notice to the debtor of
the additional information required. (Id.)
Once the
debt collector receives all of the specified information, the
debt collector must review and consider all information provided
by the debtor, as well as information available to the debt
collector in its file or from the creditor. (Civ. Code, §
1788.18, subd. (d).) This differs from the federal Fair Debt
Collection Practices Act (“FDCPA”), which requires that, after
receiving notice from the purported debtor that the debt is
disputed, the debt collector needs only to verify the debt and
provide the debtor with a copy of the verification before recommencing
collection activity. (15 U.S.C. § 1692g.)
Under section 1788.18 of the Civil Code,
debt collectors can restart collection activities only upon:
(1) making a good faith determination that the information does
not establish that the debtor is not responsible for the particular
debt, and (2) notifying the debtor in writing of that determination
and the basis for that determination. ( Id. )Assembly Bill No.
1294 provides little guidance as to what a “good faith determination”
is.(2) It provides that the debt collector's
determination to “be made in a manner consistent with the provisions
of 15 U.S.C. § 1692f(1), as incorporated by Section 1788.17.”
(Civ. Code, § 1788.18, subd. (d).) That section, title
15 United States Code section 1692f(1), prohibits the collection
of any amount (such as any interest, fee, or charge), unless
the amount is expressly authorized by the agreement creating
the debt or permitted by law. The legislative history suggests
that the good faith determination standard and reference to
title 15 United States Code section 1692(f)(1) “would require
that the debt collector make the following determinations prior
to recommencing collection activity: 1) that the debt is authorized
by the agreement creating the debt, 2) that the debt is permitted
by law, and 3) a good faith determination that the information
provided by the debtor does not establish that the debt is a
result of identity theft.” (Sen. Com. on Judiciary, comments
on Assem. Bill No. 1294 (2003-2004 Reg. Sess.) as amended June
11, 2003 .) The inclusion of Civil Code, section 1692, subdivision
(f) paragraph (1) into the bill is somewhat surprising, as one
might have expected that investigation standard to be consistent
with the validation requirement of title 15 United States Code
section 1692g. The legislative history supports that suggestion.
Existing federal law, the Fair Debt Collection
Practices Act, regulates the collection practices of third-party
debt collectors. The Act provides that an alleged debtor may
dispute a debt, and that following a dispute the debt collector
must cease collection activity until it verifies the debt and
provides the alleged debtor with a copy of the verification.
[15 U.S.C. § 1692g.] This restriction can be enforced by
a private right of action, but a collector may not be found
liable if he can show that the violation was not intentional
and resulted from a bona fide error. (Sen. Rules Com., Office
of Sen. Floor Analyses, 3d reading analysis of Assem. Bill No.
1294 (2003-2004 Reg. Sess.) as amended July
15, 2003.)
The legislative history also suggests that
the bona fide error exception provision of title 15 United States
Code section 1692(k) applies if the debt collector erroneously
determines that the alleged victim remains obligated on the
debt. This is consistent with the legislative history of the
Rosenthal Fair Debt Collection Practices Act, but contrary
to cases, such as Irwin v. Mascott (N.D.Cal. 2000) 112 F.Supp.2d
937, 959, suggesting that the bona-fide error rule applies only
to clerical errors. The legislative history suggests that a
debt collector's erroneous conclusion that the debtor remains
liable on the obligation also is protected by the 15-day right
to cure, afforded by Civil Code section 1788.30, subdivision
(d). (Sen. Rules Com., Office of Sen. Floor Analyses, 3d reading
analysis of Assem. Bill No. 1294 (2003-2004 Reg. Sess.) as amended
July 15, 2003.)
The Senate bill analysis, stated that the bill “[w]ould rely
on the existing enforcement provisions
of the Rosenthal Act, which provide for a private right action
for actual damages. The prevailing party in the action is entitled
to attorney's fees. Also, a debt collector may not be found
liable if he cures a violation within 15 days of discovering
the violation or receiving written notice of the violation.”
(Ibid.)
A debt
collector's determination that the debtor is responsible for
a certain debt does not of itself establish that the debt is
valid. But, if the debt collector determines that the alleged
debtor is indeed a victim of identity theft and ceases collection
activities, it must (1) request that a consumer credit reporting
agency to delete adverse information, if it has furnished any
such information; and (2) “[n]otify the creditor that debt collection
activities have been terminated based upon the debtor's claim
of identity theft.” (Civ. Code, § 1788.18,
subd. (g).)
Civil
Code section 1788.18, subdivision (f) is meant to complement
other statutes on identity theft, such as the provisions found
in Civil Code section 1798.92. For example, the statement and
supporting documents that comply with subdivision (a) may also
satisfy the notice requirements of Civil Code section 1798.93.
(Civ. Code, § 1788.18, subd. (f).) Moreover, a debt collector
who has possession of documents that the debtor is entitled
to request from a creditor, pursuant Penal Code section 530.8,
can produce those documents to the debtor. (Civ. Code,
§ 1788.18, subd.(h).)
In the
authors' opinion, Civil Code section 1788.18 provides a significantly
new means by which a victim of identity theft can stop collection
efforts by third-party debt collectors on debts that he or she
does not genuinely owe. But, it also requires those victims
to take the initiative and file an identity theft report with
law enforcement. This compromise protects true identity theft
victims, while reducing the number of persons who would lodge
frivolous claims to avoid the collection of otherwise valid
debts.
Citations
(1) The Office
of Privacy Protection can be located online at www.privacy.ca.gov/identitytheft.htm,
and incorporates the FTC's Identity Theft Affidavit at: www.ftc.gov/bcp/conline/pubs/credit/affidavit.pdf
(2) By analogy,
the Uniform Commercial Code defines “good faith” as “honesty
in fact in the conduct or transaction concerned.” (Com. Code,
§ 1201, subd. (19).) This suggests an objective investigation
and review of the information provided by the statutory sources.
The debt collector should not ignore evidence favorable to the
debtor in order to collect on the debt. ( Mariscal v. Old Republic
Life Insurance Co. (1996) 42 Cal.App.4th 1617, 1620 [50 Cal.Rptr.2d
224].)
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