California is leading the way in consumer protection with new legislation that was signed into law on Sept. 5, 2018 that will have ramifications for how your organization handles its aging debt.
While the provisions won't go into effect until Jan. 1, 2019, it is recommended that you review your collection practices to ensure compliance. This new law specifically applies to any business that regularly pursues collection activities in California, not just debt buyers and 3rd party collection companies.
New Law in Summary
Assembly Bill 1526 specifically relates to debt collection on older debts. Some of the requirements include:
The creation of time-barred debt, or debt that removes the option to sue to collect after the debt is more than 4 years old.
Written communication indicating a debt is time-barred, including a mandated disclaimer.
The text for the mandated disclaimers is laid out. You will have two options, depending on whether or not the debt is still within the 6 year and 9 month period and can be reported on a customer's credit report. For debts that are still reported, you will use:
"The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it. If you do not pay the debt, [insert name of debt collector] may [continue to] report it to the credit reporting agencies as unpaid for as long as the law permits this reporting."
For debts passed the 6 year and 9 month window, the text reads:
"The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it, and we will not report it to any credit reporting agency."
Deadline Looms for Updated Collection Policies
With January coming up fast, the time to make changes in collections policies is now. If legal action is a normalized part of your process, you'll want to start the wheels turning faster for any accounts that you have been sitting on for too long that are not on an active payment plan.
Although payment plans bring the account current, be aware that if your customer is sending in random one-off payments, you will want to make sure that these accounts are on a formal payment plan (or suit is filed) by year end to protect your interests as a creditor.
Update Your Paperwork
With automated letters going out regularly, it is also important to update your communications as quickly as possible. The provided text must be included on any letters sent out to time-barred accounts. That will also mean that you'll need to separate your collections based on the new requirements, so older accounts don't get mixed in with newer debts.
Change Your Reporting Process
While you probably already separate aging debts based on their time past due, you'll want to be specifically aware of debts as they approach the deadline. That might mean a conversation with IT to add extra reporting options or an extra bit of training for your collections department.
The push toward transparency in debt collection practices can be positive for your organization. By telling customers that there is a hard cut-off for repayments, you can maximize your payment value. You can also limit your need to pursue expensive court filings by taking a proactive approach to collections. Don't wait until the deadline to get all of your process and paperwork updated for the new regulations.
Tavelli Co., Inc. has over 37 years of unparalleled experience in the debt collection and receivables management industry. Our mission is to achieve the right balance between getting clients paid and being empathetic to debtor circumstances, through implementing innovative practices, hiring experienced people, and improving business decisions through analytics. We provide peace of mind to all involved by collecting money with no complaints. Tavelli Co., Inc. takes the time to carefully listen to your customers and share their feedback with you through meaningful data and transparent communication, so you have access to the information you need to make quality decisions and improve your processes in the future. Contact us today and let the debt collection experts at Tavelli Co., Inc. help you set your business up for success.
IMPORTANT: Information provided by Tavelli Co., Inc., any employees of Tavelli Co., Inc., or its subsidiaries is not intended as legal advice and may not be used as legal advice. It is not intended to be a full and exhaustive explanation of the law in any area, nor should it be used to replace the advice of your own legal counsel.