On September 24, 2024, California Senate Bill 1286 (SB 1286) was signed into law, which expands the Rosenthal Fair Debt Collection Practices Acts, codified as California Civil Code § 1788.1 et seq., to include not only consumer debts, but certain commercial debts as well. These changes apply to certain categories of commercial debt created or assigned on or after July 1, 2025.

Understanding the Rosenthal Fair Debt Collection Practices Act (RFDCPA)

The Fair Debt Collection Practices Act (FDCPA)^[1], is the federal consumer protection statute which regulates debt collection practices and establishes liability for abusive debt collection practices. Those living in California are also protected by the Rosenthal Fair Debt Collection Practices Act, which is more extensive than the FDCPA.

The Rosenthal Act prohibits creditors from engaging in unfair or deceptive acts or practices in the collection of consumer debts. The amendments of SB 1286 expand these prohibitions to include “covered commercial credit transactions,” which are defined as transactions between a person and another person in which property or money of a total value of no more than $500,000 is acquired for use primarily for other than personal, family, or household purposes (i.e. commercial purposes). In other words, commercial debts incurred by individuals, but not companies, are now subject to the Rosenthal Act.

Who Is Affected by SB 1286?

SB 1286 expands potential liability under the Rosenthal Act to include entities that make debt collection efforts in-house, such as lenders, banks, and lessors, not just servicers or other third party debt collector’s, as is the case with the FDCPA. When first proposed, SB1286 would have applied to corporations and limited liability companies as well as natural persons. That expansion was stricken from the final version of the bill, but is a signal of the intent of legislature in discussing this bill. The expansion of consumer protections to all commercial transactions was a central element to the proposal, although cooler heads appear to have prevailed for now.

While the statute does not apply to debtors who are corporations or limited liability companies, it will apply to personal guarantors of company debtors. Thus, for transactions which involve collection from a guarantor, the Rosenthal Act must be followed.^[2] For example, where the debtor is a small business and a transaction is guaranteed by the principal of that business, if a creditor makes a call to that principal to seek collection of the corporate debt, the Rosenthal Act is very likely triggered.

Prohibited Debt Collection Practices Under the Rosenthal Act

The primary content of the Rosenthal Act contains lists of prohibitions related to methods of collection, such as threats of violence, false accusations or threats, profanity, making repetitive or anonymous calls, making false representations, or communicating with third parties with the intention of causing embarrassment to the debtor. While this is not an exhaustive list, creditors should be able to comply with these requirements with well-developed internal practices, procedures, and training.

Initially, in its first communication with a debtor, a debt collector to which delinquent debt has been assigned is required to send a validation of debt letter to the debtor that includes a description of debtor’s rights. The language to be included in this letter is set by statute.^[3] A collector is also required to send the debtor a statute of limitations disclosure.^[4]

The Rosenthal Act also requires a creditor to conduct a good faith review of the debt account upon receipt of a debtor’s notice alleging that the debtor claims to be the victim of identity theft with respect to the specific debt being collected.^[5] Where a debtor gives a collector said notice and provides supporting evidence, the debt collector must cease collection activities and complete a review considering the information provided by the debtor, within 10 days of receipt of the complete dispute statement. The creditor must then send a notice of determination to the debtor 10 business days after conducting the review before collection activities can resume.^[6]

Information Requests and Documentation Requirements

Creditors are also required to provide to debtors, upon demand, information related to the debt and accounting information, such as (1) a statement that the debt collector has authority to collect the debt, (2) the debt balance, (3) the date of delinquency, (4) the identity of the creditor, (5) the identity of the debtor, (6) the record of assignments of the debt, if any, and (7) the California license number of the debt collector, if applicable.^[7] SB 1286 does not impose any additional licensing requirements.

These requirements can create pitfalls for creditors who do not have the proper procedures in place to receive and respond to disputes and information requests. Based on this author’s experience litigating other consumer statutes, which contain somewhat similar burdens of investigation and dispute response, the expansion of SB 1286 may cause a spate of litigation based upon the Rosenthal Act’s dispute response and information request provisions. These amendments will present a new area of compliance for creditors who engage in direct collection efforts to navigate.

The application of the Rosenthal Act is determined by where the debt collection actions are taking place. If the debtor is a resident of California and/or the debt collector is based in California, the Rosenthal Act likely applies regardless of where the debtor is currently residing. Conversely, if the debtor is not based in California, the Rosenthal Act would not apply. Of course, these rules can be altered by contract. For example, where a loan includes a provision dictating that California law applies, the Rosenthal Act likely applies.

There are only a few exceptions to the applicability of the Rosenthal Act.

Debts that are not yet delinquent (i.e. not “due and owing”) are not considered subject to the Rosenthal Act.^[8]

Further, aggregating commercial debt may result in an exemption of the Rosenthal Act by bringing the total amount owed by a borrower to a lender over the $500,000.00 cap. For example, where the same borrower owes a $100,000.00 loan and a $500,000.00 loan to the same lender, the combined debt is over $500,000.00 and an exemption is triggered.^[9]

There are no exemptions for banks or bank subsidiaries.

Potential Liability and Penalties for Violations

The penalties for violating the Rosenthal Act can be severe, depending on the alleged offense. Debtors who prevail in asserting a claim for violation of the Rosenthal Act can be entitled to their actual damages.^[10] Where a violation is “willful and knowing” creditors also may be liable for statutory penalties ranging from $100 to $1,000, per violation, as well as punitive damages.^[11] The recovery of attorneys’ fees are also permitted by statute.^[12] These remedies are cumulative and the requirements of the Rosenthal Act cannot be waived.^[13]

Key Compliance Strategies for Creditors

However, a creditor can defend itself by showing by a preponderance of the evidence that the violation occurred unintentionally despite reasonable preventive procedures, or unless the collector notifies the debtor of a curable violation and corrects it within 15 days after discovery or written notice of the violation.^[14] Furthermore, there is a 1-year statute of limitation period on Rosenthal Act violations.^[15] And debtors should take heed of the fact that the attorneys’ fee provision is a two-way street. A prevailing creditor may be awarded attorneys’ fees on a finding of the debtor’s lack of good faith.^[16]

When dealing with consumer complaints, we often find that accurate and careful record keeping is our best ally. Of course, communication logs are discoverable business records, so sloppy or inaccurate note taking can be turned against a creditor if they aren’t careful to institute uniform training and policies on note taking, but they are also useful tools in disproving allegations of statutory violations dealing with conduct towards consumers. Creditors may also want to weigh the value of recording calls with debtors to have an undisputable record. Well-developed procedures for receiving and responding to dispute statements and information requests will be critical in addressing allegations that the Rosenthal Act has been violated.

The amendments of SB 1286 are more limited in scope than initially feared because they only apply to natural persons. However, with the passage of SB 1286, the line between commercial and consumer debt is blurring. The Rosenthal Act is a-changing and creditor’s policies should change with them. Creditors would be wise to have uniform procedures to address these changes. And out-of-state creditors should take note. California often acts as a testing ground for experimental legislation which spreads east. Like a rolling stone.

Adeline Tungate is an attorney in Buchalter’s Orange County office and a member of the litigation practice group. Ms. Tungate’s practice focuses on commercial litigation, with an emphasis in mortgage lending and servicing as well as nonconventional lending and private money lending.

^[1] 15 U.S.C. §§ 1692, et seq.

^[2] Cal. Civ. Code, § 1788.2(h)(2).

^[3] Cal. Civ. Code, § 1788.14.5(e)(1).

^[4] Cal. Civ. Code, § 1788.14(d).

^[5] Cal. Civ. Code, § 1788.18(a).

^[6] Cal. Civ. Code, § 1788.18.

^[7] Cal. Civ. Code, § 1788.14.5(a).

^[8] Cal. Civ. Code, § 1788.2(h)(1).

^[9] SB 1286 Analysis, Senate Rules Committee (Aug. 9, 2024).

^[10] Cal. Civ. Code, § 1788.30(a).

^[11] Cal. Civ. Code, § 1788.30(b); Komarova v. National Credit Acceptance (2009) 175 Cal.App.4th 324.

^[12] Cal. Civ. Code, § 1788.30(c).

^[13] Cal. Civ. Code, § 1788.33.

<sup”>[14] Cal. Civ. Code, § 1788.30(a), (d), (e).

^[15] Cal. Civ. Code, § 1788.30(f).

^[16] Cal. Civ. Code, § 1788.30(c).