California Imposes SOL Notice Requirement on Debt Collectors; Bans Legal Action on ‘Time-Barred’ Debt

insideARM's Editor's Note: This article was originally published on the Maurice Wutscher blog and is republished here with permission.

On August 22, the California legislature passed Assembly Bill 1526, relating to the collection of debt that is beyond the statute of limitations for bringing legal action.

Since 2014, debt buyers collecting from California residents have been required by Cal Civ Code § 1788.52(d)(2) to provide one of two notices, as applicable when a debt is “time-barred.” The new legislation creates the same requirement for debt collectors, making it a violation for a debt collector to send a collection letter to a consumer on a time-barred debt without providing the consumer with one of the following written notices, depending on the age of the debt:

1. “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.”
2. “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.”

The applicable notice must be included in the first written communication sent to the consumer after the debt becomes time-barred.

The new law also amends Cal. Civ. Proc. Code § 337, pertaining to the statute of limitations for written contracts and book accounts, by prohibiting the initiation of a legal action on time-barred debt, rather than requiring a consumer to raise it as an affirmative defense.  A similar prohibition currently exists for debt buyers under Cal Civ Code § 1788.56.

Pending approval by the governor, the new law will become effective January 1, 2019.