Friday, September 14, 2018

California Takes Its Statute of Limitations To The Limit

With Assembly Bill No. 1526, signed by Governer Brown on September 5, 2018 and effective January 1, 2019, California joins those states which require debt collectors to notify debtors that the debts are barred by the expiration of the statute of limitations. California's law takes the concept a bit further.

Normally, a statute of limitations is a defense that the defendant has to allege and prove. If the defendant does not raise it, or is unable to prove that whatever it was alleged to have done happened too long ago, the suit is not time-barred. The facts surrounding the act giving rise to the lawsuit are sometimes inconsistent and difficult to prove. Defendants who default because they did not answer or appear in the case lose the right to claim the creditor's action may be barred by the statute of limitations.

Federal Fair Debt Collection Practices Act (FDCPA) cases turned this concept on its head. Instead of the debtor having to allege and prove, factually, that the suit was time barred, these cases stated it was a violation of the FDCPA for the debt collector not to advise the debtor the statute of limitations had passed. What followed were regulations such as New York's 23 NYCRR § 1.3, and Massachusetts 940 CMR 7.07(24). These, like many other states' regulations, require a debt collector, and in Massachusetts, a creditor, to explain to the debtor in writing that the statute of limitations has or may have run on the debt.

California's new law takes the statute of limitations notification concept a step further. The new California law prohibits suit on a debt for which the statute of limitations may have run. The law states:

When the period in which an action must be commenced under this section has run, a person shall not bring suit or initiate an arbitration or other legal proceeding to collect the debt. 

States like Massachusetts and New York have extensive directions for debt collectors and creditors in determining and notifying the debtor as to the possibility or likelihood of the expiration of the statute of limitations. California does not. Instead, under the new California law the debt collector is required to notify the debtor that the debt collector cannot file suit on the debt.

Collecting on arguably time-barred debt without notifying the debtor of such fact is already prohibited under FDCPA case law, so the law does not impose new restrictions. California debt collectors will no longer have to rely on FDCPA case law, which is sometimes conflicting, in crafting their statute of limitations notices. The new law sets forth specific language debt collectors are required to use with reference to possibly time-barred debt, creating a safe harbor of sorts.

Unlike other jurisdictions, of course, California takes the additional step of barring suit on some debts altogether. It will be interesting to see if regulators require debt collectors to advise debtors of other affirmative defenses. If they do, hopefully those regulations will be clear and easy to follow.

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