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In our last Research Assistant meeting for the month of September, members discussed how California’s Governor Gavin Newsom signed three consumer protection bills into law on September 24th, 2024.
These bills addressed medical debt, commercial debt and enforcement of money judgments. A few amendments were made, influenced by lobbying efforts from groups such as RMAI. Below is a breakdown of the new laws:
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- Senate Bill 1061- Consumer Debt: Medical DebtEffective January 1, 2025
Senate Bill 1061 will prohibit nearly all medical debt from appearing on consumer credit reports for California residents. Public interest groups argue that “medical debt does not belong on credit reports” because it arises from circumstances outside of the consumer’s control, unlike voluntary debt. However, lenders opposed this view and successfully lobbied for an amendment that excludes cosmetic procedures and other non-medically necessary debts.
The bill also renders medical debt void and unenforceable if it has been reported to a credit bureau. Furthermore, it aligns with the Consumer Financial Protection Bureau (CFPB) by prohibiting creditors from considering any medical debt that appears on a credit report when making lending decisions. This legislation is expected to provide consumers with more time to address their medical debts before facing debt collection.
Fear of prohibiting lenders and those extending credit to consumers, from considering valid medical debt owed by the consumer, could misrepresent a consumer’s financial situation. Like other unavoidable debts (e.g., car repairs or home damage), medical debt should be treated as valid debt owed by consumers, regardless of its involuntary nature. Even if they had insurance to cover a portion.
- Senate Bill 1286 – Rosenthal Fair Debt Collection Practices Act: Covered Debt: Commercial Debts
Effective January 1, 2025, on debt assigned on or after July 1, 2025
The Rosenthal Fair Debt Collection Practices Act currently governs the collection of consumer debt, imposing specific restrictions and requirements on debt collectors. Senate Bill 1286 expands these provisions to include certain types of commercial debt. The bill defines “covered commercial credit transactions” as those in which a person acquires property, services, or money valued at no more than $500,000 on credit for use primarily in non-personal, non-household purposes.
It also introduces definitions for “covered commercial debt” and “covered commercial credit.” as money, property or their equivalent, due or owing from a natural person due to a lender, commercial financing provider, or debt buyer. The broad definition of commercial debt under this bill may encompass sales-based financing transactions as well. Agencies collecting commercial debt under these new guidelines must review and adjust their collection efforts in line with the Rosenthal Act, conduct risk assessments, and update their training, policies, and procedures accordingly.
- Assembly Bill 2837 – Civil Actions: Enforcement of Money JudgmentsEffective January 1, 2025
This bill would expand the types of retirement plans exempt from money judgments and exempt such property to the extent necessary to provide specified support for, and satisfy tax obligations of, the judgment debtor. The judgment creditor will be required to take additional steps to verify the debtor’s address. They will be required to provide the debtor with a notice of enforcement, by requiring a court order returning exempt property that has been levied upon. There will be a limit to the time period earnings can be withheld and the frequency with which such an order may be sought. When a judgment creditor seeks to enforce a judgment based on recovery of a personal debt, these provisions would need to be applied.
Depending on your current practices to verify addresses for this purpose, you will need to verify judgment debtor addresses further and know where you can and cannot enforce post judgment remedies to recover debt.
RMAI encourages its members that collect on accounts owed by California consumers to share this information with their legal, compliance, and operations employees.
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