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California Tells Debt Buyers to "Prove It"

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"As California goes, so goes the nation." Could that saying be true? It just might be, considering the Golden State's population of 36 million is six times that of the average state. California's economy is so large that it ranks eighth in the entire world.

It's therefore worth noting what California is about to accomplish with respect to cleaning up dirty debt collectors.

State Senator Mark Leno (D-San Francisco) has sponsored Senate Bill 890, also known as the "Fair Debt Buyer Practices Act." It passed the California Senate by a 22-14 vote, and now moves on to the State Assembly. If signed into law, it will correct injustices that Californians have endured for years.

First, the law will prohibit a practice that could be called: "Sue 'em all and ask questions later." Debt buyers will be prohibited from getting a legal judgment against consumers -- or sending any written material to consumers -- unless they can document that they've matched the right person to the debt. They'll have to produce the name and address of the debtor in the original creditor's records, and then identify all subsequent owners of the debt, along with other details.

This common-sense requirement will blow a giant hole in the profits of California lawsuit sweatshops, which previously could sit back and grin while a consumer shouldered the expense of proving that he wasn't the "John Smith" that racked up all those charges.

California Attorney General Kamala Harris has endorsed the bill, saying:

"Too often, a consumer can get ensnarled in a long and costly battle to prove they are not the ones responsible for debt. The Fair Debt Buyers Practices Act will put reasonable requirements on debt buyers and ensure consumers are not forced to pay the debts of others. This bill protects consumers from those in the debt-buying industry who would misuse precious judicial resources to an unjust end."

It gets even better for consumers and worse for debt buyers: The law will prohibit a debt buyer from initiating a suit to collect a debt if the statute of limitations on that debt has expired (a.k.a. "time-barred debt") regardless of documentation. And if the debt buyer is trying to collect on time-barred debt without suing, it must disclose the following to consumers in any written materials:

"Because of the passage of time, we may not sue in court, or commence an arbitration or other proceeding, on debt that is barred by a statute of limitations."

That should go a long way toward solving not a theoretical problem, but a very real one: The California Department of Consumer Affairs concluded in a 2011 report that much of the debt purchased by debt buyers is not accompanied by sufficient documentation to identify the debtor. Yet, as many as 90 percent of some debt buyers' claims result in a default judgment where no defendant appears to challenge the debt claim.

"The passage of this legislation is a major breakthrough for consumer protection in California," said Senator Leno.

"Aggressive debt buyers are using deceptive tactics to collect funds when they cannot even prove they are targeting the right consumer for the correct debt amount. The Fair Debt Buyers Practices Act relieves consumers and courts from the burdens and costs associated with processing large volumes of unsubstantiated debts."

The Consumer Federation of California also supports it, and they've been advocating for consumer rights for 52 years.

The Director of the Consumer Financial Protection Bureau, Richard Cordray, has already announced a program of on-site inspections of the largest debt buyers. Still, the problem is so vast that it will take both federal and state efforts to eradicate the invasive species known as the unethical debt buyer.

If you're from California, now's an excellent time to add your voice in favor of this bill. Just take a moment to contact your Assembly Member today and express your support for SB 890. You can be sure that the bad guys will lobby hard to maintain their ill-gotten lifestyle. Your encouragement of your representative will make it clear that citizens -- and their votes -- are behind this common-sense bill. It will be a shot from California to the profits of unethical debt buyers, and a shot that will be heard across the country.

Bill Bartmann is CEO of CFS II, a debt-collection company. His companies have helped to settle debts of more than 4.5 million people without ever filing suit against a customer.