California Enacts Package of Consumer Protection Bills

Last week, California enacted a package of consumer protection laws, including three bills aimed at restricting debt collection practices surrounding civil actions for money judgments, commercial debt collection, and medical debt reporting. These laws reflect the state’s continued efforts to shield consumers and small businesses from harmful practices in offering financial products and services.

Under SB 1061, the Medical Debt Reporting Ban, medical debt will no longer be permitted on consumer credit reports in California, and medical debt cannot be used as a negative factor when making credit decisions. Consumer Finance Monitor noted that this aligns with efforts by the Consumer Financial Protection Bureau (CFPB) to remove medical debt from credit reports nationwide.

SB 1286 expanded protections to commercial debts, broadening the Rosenthal Fair Debt Collection Practices Act (RFDCPA) to include specific small business debts. The RFDCPA covers commercial debts up to $500,000, and applies to both creditors collecting their own debts as well as third-party collectors.

Updates to the RFDCPA include expanded misrepresentation protections, identity theft protections, and maintaining current consumer protections like time-barred debt disclosures. It also includes new definitions for “covered commercial debt” and “covered commercial credit” to encompass sales-based financing transactions.

The third bill, AB 2837 introduces new requirements for bank levies and wage garnishments, where judgment creditors have to take extra steps to provide proper enforcement notice and verify the debtor’s address. It also limits how often a wage garnishment can be sought and how long it can be enforced, and financial institutions are required to protect exempt funds from being levied.