Mortgage Debt Regulated By Consumer Debt Collection Law
Recent legislation signed into law will affect mortgage lenders, servicers, brokers and attorneys who seek to collect mortgage debt from California consumers.
In 1977, Congress enacted the Fair Debt Collection Practices Act (“FDCPA”) to “eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.” 15 U.S.C. § 1692(e). In the same year, the California Legislature enacted the Rosenthal Fair Debt Collection Practices Act (“Rosenthal Act”) “to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts and to require debtors to act fairly in entering into and honoring such debts.” Cal. Civ. Code § 1788.1(b).
Since then, the California Legislature amended the Rosenthal Act to incorporate many FDCPA provisions by reference, thereby making violations of these provisions into Rosenthal Act violations. Cal. Civ. Code § 1788.17. Up until now, it was not clear if “mortgage debt” was included in the Rosenthal Act.
On October 7, 2019, California Governor Gavin Newsom signed into law legislation that expressly includes “mortgage debt” within the definition of “consumer credit” found in the Rosenthal Act. Senate Bill 187 (“SB 187”) amends the Rosenthal Act to expressly apply to the debt collection activities involved in consumer mortgage loans. SB 187, which will go into effect on January 1, 2020, also amends the Rosenthal Act so that attorneys will be included in the definition of “debt collector.”
Consumer Debt Includes Mortgage Debt
In California, debt collection activities performed by a debt collector in connection with “consumer debt” or “consumer credit” are generally subject to the Rosenthal Act. “Consumer debt” and “consumer credit” are defined under the Rosenthal Act to mean “money, property or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction.” Cal. Civ. Code § 1788.2(f). SB 187 preserves that definition and adds “mortgage debt” to the definition of “consumer debt.”
The addition of “mortgage debt” to the definition of “consumer debt” seems to be the California Legislature’s way of clarifying an existing law on the Rosenthal Act’s comprehensive definition of “consumer credit transaction” as “a transaction between a natural person and another person in which property, services, or money is acquired on credit by that natural person from such other person primarily for personal, family, or household purposes.” SB 187 states that the addition of “mortgage debt” to “consumer debt” is declaratory of existing law.
Before 2018, there was conflicting federal district court rulings on this issue. That conflict was resolved when a state appellate panel found that a mortgage servicer was subject to the Rosenthal Act. Davidson v. Seterus, Inc., 21 Cal. App. 5th 283 (Ct. App. 2018).
Attorneys Considered Debt Collectors
Prior to SB 187, the Rosenthal Act defined a “debt collector” to mean “any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection. The term includes any person who composes and sells, or offers to compose and sell, forms, letters, and other collection media used or intended to be used for debt collection, but does not include an attorney or counselor at law.” Cal. Civ. Code § 1788.2(c).
SB 187 eliminates the exclusion for “an attorney or counselor at law.” Thus, any attorney relying on this exclusion from the Rosenthal Act’s substantive requirements should reassess whether and which of the statute’s requirements apply to the attorney’s California activities.
The Most Common Requirements and Protections
The FDCPA and Rosenthal Act provide too many debt collector requirements and consumer protections to list them all here. The full list can be found in Cal. Civ. Code §§ 1788 to 1788.33. Here is a list of the most common practices that debt collectors are prohibited from participating in. Debt collectors cannot:
- Communicate with debtors between the hours of 9pm and 8am;
- Contact debtors at their place of employment if the debt collector is informed that such contact is not allowed while the debtor is at work;
- Threaten violence or other criminal behaviors to harm the debtor’s person, reputation or property;
- Use obscene or abusive language;
- Publish a “blacklist” of consumers who allegedly refuse to pay debts in a timely fashion;
- Advertise a debt for sale to coerce payment;
- Repeatedly call a debtor or let the debtor’s phone ring continuously;
- Make false statements regarding affiliation with the US government;
- Make false statements about the nature, character or amount of the debt;
- Make false statements about being an attorney or representing an attorney;
- Threaten to make false credit statements about the debtor;
- Solicit a postdated check to use as a threat or to bring criminal charges against the debtor; or
- Contact the debtor directly if the debt collector knows the debtor is represented by an attorney.
These requirements do not apply to commercial mortgages or business purpose mortgage debt at this time, but best practices would be to abide by the protections even if you are not dealing with consumer mortgage debt because they make common sense. Your communications with debtors should state something like: “This communication is from a debt collector and any information obtained will be used for that purpose.” Embed this sentence in your outgoing email messages as well.
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