A Brief History of Consumer Credit Protection Laws
In 1977, in response to a growing problem with abusive debt collection practices, the federal government enacted the Fair Debt Collection Practices Act (FDCPA). The thrust of the FDCPA was to eliminate abusive debt collection practices by penalizing businesses that violated the regulations. In addition to imposing affirmative requirements on debt collectors, the FDCPA prohibited a variety of abusive collection practices, including: any communication with a debtor after he/she has retained an attorney, the use of profane or obscene language, misrepresentation and deceit, incessant calls, etc. More importantly, the FDCPA gave aggrieved consumers a legal cause-of-action to seek damages in court. Under the FDCPA, if a collector is proven to have violated one of the provisions, a consumer need not prove actual damages in order to recover up to $1,000 in damages plus reasonable attorney fees.
Public Response to the FDCPA
Though the FDCPA was undoubtedly a step in the right direction, many consumer advocates criticized the FDCPA for not going far enough to protect consumers or deter overzealous collection agencies. Specifically, critics argued that the FDCPA’s exemption of original or first-party creditors provided a dangerous loop-hole, through which companies could avoid liability by simply maintaining an in-house collection agency to do the work. (Original creditors are entities that extend credit directly to consumers, such as banks, credit card issuers, payday lenders and financial institutions. In general, the FDCPA does not apply to original creditors.) Furthermore, they argued that the damages “cap” of $1,000 contained in the FDCPA is too insignificant to have any deterrent effect whatsoever.
Following the enactment of the FDCPA, several state legislatures enacted laws that afford consumers greater protection. Of the several states electing to do so, California, with the passage of the Rosenthal Fair Debt Collection Act (Rosenthal Act), is among the most consumer-protective. Unfortunately, because many consumers are not aware of their rights, abusive debt collection practices remain a persistent problem in California and throughout the country.
California Rosenthal Act gives residents protections against original creditors
To be sure, the California Rosenthal Act incorporated many of the substantive provisions of the FDCPA, including those dealing with false misrepresentations, threats, harassment and unwarranted communications with persons other than the actual debtor. Unlike the FDCPA however, the Rosenthal Act’s expansive definition of “debt collector” includes anyone “who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection”. See Cal. Civ. Code §§ 1788 et seq. The significance of this is two-fold. First, California residents are afforded double-protection under the Rosenthal Act and the FDCPA. Second, and perhaps most importantly, the Rosenthal Act extends to collection agencies, original creditors and repossession agencies.
FDCPA vs. California Rosenthal Act
Under both the FDCPA and the Rosenthal Act, you may bring a suit for damages within one year of the violation. If your original lender has violated your rights, you are entitled to bring a lawsuit under the Rosenthal Act but not the FDCPA, although in many cases the FDCPA standards will apply to original creditors covered by the California law. With some exceptions, an original creditor who is found in violation of the Rosenthal Act can be subjected to remedies under both statutes. Third-party debt collection agencies, without exception, are liable under both state and federal law.
Both the FDCPA and the Rosenthal Act limit their protection to debt that is primarily for personal, family, or household purposes (consumer debt). Neither act applies to business and commercial debts, even when a business debt takes the form of a personal loan. Likewise, alimony, child support, criminal fines and tort claims are not generally covered by either law.
Illegal or not, you shouldn’t have to deal with harassment from debt collectors. The attorneys at McCarthy Law can help you stand up for your rights and regain control of your finances. Contact us today to schedule a free consultation.
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