California Bill No. 2443, Proposing to Amend the Consumer Legal Remedies Act.
*not to be confused with the Prorater Bill No. 2524
What Happened on May 5, 2020 before the Privacy and Consumer Protection Committee:
On May 5, 2020 Bill No. 2443 passed in the Privacy and Consumer Protection Committee by an 8-3 vote. The vote followed party lines, with the three nays coming from the only three Republicans on the Committee. To understand what this means for this bill first you must understand the legislative process of the California State Legislature. First a bill is introduced by a “first reading” of the bill when the bill number, the name of the author, and the descriptive title of the bill is read on the floor of the house. Then the bill is assigned a committee hearing; “during the committee hearing the author presents the bill to the committee and testimony can be heard in support of or opposition to the bill. The committee then votes by passing the bill, passing the bill as amended, or defeating the bill. Bills can be amended several times. Letters of support or opposition are important and should be mailed to the author and committee members before the bill is scheduled to be heard in committee. It takes a majority vote of the full committee membership for a bill to be passed by the committee.” Bill No. 2443 was passed as amended and now moves on to the next stage which entails a second and third reading of the bill to the House floor – this is where all members of the particular legislative House will vote on the bill. If Bill No. 2443 passes the Assembly, the entire process is repeated in the Senate. It is only after both Houses agree to a compromise on both of their versions of the passed bill that the bill is sent to the Governor to be enacted.
As it currently stands before its second and third reading in the Assembly, and to reiterate what we discussed during our Webinar on April 28, 2020, this bill would include, as an unlawful act under the Consumer Legal Remedies Act, unlawful or deceptive acts in the settlement of debt owed to another, including violations of the provisions regulating proraters. The bill would specify that vicarious liability under this provision would be imputed to persons or entities providing payment processing services for any company that negotiates or promises to negotiate the settlement of debts owed by another.
New Proposed Language:
The particular language amended in the Consumer Legal Remedies Act reads as follows: “(A) Engaging in the business of receiving or soliciting money or evidences thereof, or processing payment for the purpose of distributing the money or evidences thereof, among creditors in payment or partial payment of the obligations of the debtor, in a manner that deceives consumers, including by (i) failing to disclose clearly and conspicuously the terms and risks of the program; (ii) failing to adhere to the requirements of section 1632 of the Civil Code; (iii) making false or misleading statements regarding consumer outcomes, including the impact of debt settlement on credit score and credit rating; or (iv) failing to disclose clearly and conspicuously that certain income and assets are exempt from collection as specified in Chapter 4 (commencing with section 703.010) of Division 2 of Title 9 of Part 2 of the Code of Civil Procedure.
(B) Engaging in the business of a prorater in a manner that violates Division 3 (commencing with Section 12000) of the Financial Code.
(C) Providing payment processing services, for which a fee is charged to a consumer, to a prorater that is acting in violation of subparagraph (A) or (B).
(D) This paragraph shall not apply to entities that are certified as tax-exempt by the Internal Revenue Service.”
Since Bill No. 2443 is still in the early stages in the Assembly there is time for it to go through more amendments before passing, or time for it to be defeated. Therefore, as we have mentioned for previous regulatory updates, if you believe that your business will be negatively impacted if this bill passes as it is currently written, the California State Legislature recommends that you send letters of opposition outlining your position.
We will continue to update you on how this bill continues to move through the California State Legislature.