Borrowers are protected from debtor harassment under the federal Fair Debt Collections Practices Act, and California borrowers have additional clarifications under the California Rosenthal Fair Debt Collection Practices Act. These laws are imperative for hard money lenders to pay attention to. Recent updates mean that new regulations for both the FDCPA and the California Rosenthal Act are already in place. Lenders should remain diligent in educating their teams on the updated regulations for 2022.
Actions Prohibited Under the Fair Debt Collections Practices Act (FDCPA)
The FDCPA targets various types of debt collection agencies and was designed to prevent “abusive, deceptive, and unfair debt collection practices.” Generally, the practices prohibited under the FDCPA can be categorized into eight different acts.
- A collector may not harass a borrower: Harassment might include excessive calls, or letting the phone ring to annoy the borrower. The act also includes regulations on the time of day that collectors may call borrowers.
- A collector may not threaten a borrower: This includes threats of violence towards the physical person, their property, or their reputation. They may also not threaten to have a borrower arrested unless the borrower has done something illegal by not paying.
- A collector may not verbally abuse a borrower: This includes the use of obscene and aggressive language.
- A collector may not publish a list of unpaying borrowers: Often known as a “deadbeat list,” collectors are forbidden from publishing the names of unpaying borrowers to publicly shame them. “Publication” includes sharing information with any uninvolved third party.
- A collector may not advertise the sale of a debt: They also may not threaten to sell the debt to another party.
- A collector may not use deceptive means to collect a debt: Deceptive means include lying to the borrower about the reason they are collecting payment. Borrowers are also protected from collectors seeking to collect more than they are owed.
- A collector must identify themselves as such: Also known as a Mini Miranda, debt collectors must accurately identify themselves as debt collectors in all their communications to borrowers. They may not identify themselves as government agents, unless they are associated with the government. They may not identify as lawyers unless they are lawyers. Collectors must correctly identify who they are and why they are calling.
- A collector must avoid unfair acts: This stipulation covers any unfair or deceptive means that a collection agency may use to coerce payment from a borrower.
The FDCPA does not cover organizations that only occasionally collect debts. It also only covers consumer debt, and does not include business or corporate debt.
How California is Different: The California Rosenthal Act
The Rosenthal Fair Debt Collection Practices Act provides further protections or clarifications for the FDCPA. These extensions primarily address the types of organizations that the federal act may not cover. “Debt collectors” are extended past third party agencies, and include original creditors, any entity that collects debts as a regular part of their organization, repossession agencies, or any organization that creates media for debt collection.
Webinar: “Collections and Servicing: New Regulations Already in Effect!”
Loan servicing rules have recently changed in California and you need to be aware of what the Fair Debt Collection Practices Act (FDCPA) and the Rosenthal Act now involve. Recent clarifications to these laws mean that private lenders who service consumer loans are likely covered under the Rosenthal Act, which pulls them into many portions of the FDCPA.
On Thursday, January 20th from 11 am to 12 pm PST, join the California Mortgage Association in an upcoming webinar about new FDCPA and Rosenthal Act regulations. Hosts Randy Newman, CEO of Total Lender Solutions and Michelle Mierzwa, Partner at Wright, Finlay & Zak, LLP will take you through these laws and their recent changes. Register your team here.
Receive Continued Support for Regulation Resources and Education
At Total Lender Solutions, we pride ourselves on being a resource for the lending community. For over 15 years, our team of highly experienced real estate professionals and legal experts has transformed complicated processes into clear resolutions for institutional and private lenders. We work as a vigorous extension of your team to provide comprehensive solutions and seamless communication, from pre-foreclosure and notice of default to the final sale phase. Our dedication and persistence when it comes to the foreclosure process ensures that our clients feel confident in reaching a successful outcome. Contact us today.
