The new year brings yet more distressing news from the Golden State. If you are in the commercial finance space, and you want to collect that gold in California, you will soon have to heed all the rules that, until now, only applied to consumer debt collectors.

Beginning July 1, 2025, commercial loans of $500,000 or less will be subject to the debt collection protections of the Rosenthal Fair Debt Collection Practices Act (RFDCPA). What is potentially more troublesome is that the statute will apply not only to debt collectors, but creditors! That means that your in-house collection department will have to heed all the prohibitions and restrictions of the RFDCPA.

Debt Collection Rules

The rules are fairly straightforward and apply to debt collectors and creditors attempting to collect on their own paper. There are many, including:

1. It will be a crime for collection notices to simulate legal or judicial process or give the appearance of being authorized by a governmental agency or attorney (if it is not).
2. If a borrower claims identity theft, collection efforts must cease once the borrower provides certain information which confirms the identity theft claim.
3. The use, or threat of use, of physical force or violence is prohibited, as is telling a borrower that failure to pay a debt will result in an accusation that the borrower has committed a crime.
4. Debt collectors/creditors can only initiate judicial proceedings in the county in which a non-natural person is located.
5. There are many restrictions as to the timing of collection notices and calls.

There is a plethora of other rules, but you get the picture.

Other Important Issues

There are other important issues, i.e.:

1. Are your attorneys bound by these rules? In my opinion, the answer is yes. At least I intend to comply.
2. How liable is a creditor for its independent contractors who perform collection activities?
3. Can you send emails at night? What if they are computer generated?
4. Some of the terms of the law i.e. communicating with “such frequency as to be unreasonable” are vague, subjective and rich fodder for consumer plaintiff’s lawsuits. Lender beware!
5. The new law will prohibit the “false representation that a legal proceeding has been or is about to be instituted” if payment is not made. Gone are the days of sending that threat to sue if you don’t really mean it. So, if you make that threat, are you compelled to sue? I am sure the consumer lawyers will claim foul!

One good thing about the expanded statute is that there is no licensing requirement for commercial debt collectors/creditors (yet!).

There is much more, but it is, as they say, beyond the scope of this article. My best advice is to have an attorney prepare a best practices guide to help you navigate this minefield. That is exactly what I am doing for my clients.

I am publishing a best practice guide to help creditors through the new law. If you are interested in it, please contact me at [email protected].

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