Banking Committee

JOINT FAVORABLE REPORT

Bill No.:

HB-5571

Title:

AN ACT CONCERNING CONSUMER COLLECTION AGENCIES AND DEBT COLLECTION ACTIONS.

Vote Date:

3/15/2016

Vote Action:

Joint Favorable Substitute

PH Date:

3/8/2016

File No.:

SPONSORS OF BILL:

Banking committee

REASONS FOR BILL:

This bill amends statutes governing debt collectors in the state and expands the definitions of “consumer collection agency” and “consumer debtor” to require licensing for companies engaged in the collection of federal income tax debt and adds definitions for “federal income tax” and “federal income tax debtor” and makes corresponding changes to state statute. The bill also requires that consumer collection agencies engaged in collecting federal income tax debt be registered as debt collectors.

SUBSTITUTE LANGUAGE:

The substitute language makes various technical changes to the bill.

RESPONSE FROM ADMINISTRATION/AGENCY:

Jorge Perez, Connecticut Department of Banking: This bill amends the banking statutes to clarify that consumer collection agencies are subject to state licensure if they collect (on behalf of the U.S. Department of Treasury) federal income tax debt from debtors who reside in this state. The bill also makes clear that, absent an explicit agreement signed by a consumer debtor to the contrary or by other operation of law, a collection agency may not assess any interest, fee, charge, or expense to the debts they attempt to collect. This is a common-sense measure that levels the playing field and by ensuring that consumers receive the benefit of their agreement with the original creditor, and do not fall prey to unscrupulous collection practices.

Subira Gordon, African-American Affairs Commission: The bill addresses some of the disturbing facts that were brought to light in the Pro-Publica report “the color of debt,” which shows that black neighborhoods are targeted by debt collectors at a much higher rate than other neighborhoods which continue the long history starting with share croppers and the inability of African Americans to get out of a high debt burden

NATURE AND SOURCES OF SUPPORT:

Evan Preston, ConnPIRG: House Bill 5571 presents a reasonable reform that should have the support of the Banking Committee and General Assembly. Consumers should not need to prove more than a violation of law to hold creditors engaging in abusive practices accountable. Debt collectors should be required to clearly demonstrate to a court the propriety of their claim on a consumer. This is already the standard of federal law and our state law should conform.

Raphael Podolsky, Legal Assistance Resource Center of Connecticut: This bill expands the Consumer Collection Agency Act (CCAA) to include agencies collecting federal income taxes and makes a number of other changes to protect debtors from abusive collection practices. Mr. Podolsky also suggested making several changes to the bill, which he enumerated in his testimony. These included:

Expanding the CCAA to include all third-party tax collectors

Revise lines 208-215 of the original bill striking in line 211 “unless” and ending in line 214 with “incurred”. This part would undermine the protection if the original contract has a boilerplate provision authorizing the collection agency to add charges.

Sarah Poriss, Attorney: This bill would insert needed protections for consumers, and our courts, involving how collection actions are carried out in the State. Specifically, the changes in Section 7 that would require the filing of a privilege log and the identification of any redacted material contained in documents filed with the court in support of claims that a debtor owes an account balance are necessary to address the practices of some creditors who use our courts to obtain judgments against CT consumers

Tom Swan, Connecticut Citizens Action Group: A recent report pulled together by the Alliance for a Just Society using complaints filed with the Consumer Financial Protection Bureau regarding debt collectors makes the case for the limited protections outlined in this bill.

NATURE AND SOURCES OF OPPOSITION:

Connecticut Bankers Association: This bill would impose cumbersome and confusing procedural requirements on "creditors" (which includes all banks) when trying to collect debts that are owed to them. Banks are heavily regulated and examined by both state and federal regulators, in this area. As presently drafted, the legislation would likely create compliance risks for creditors and result in frivolous challenges in collection actions. Those challenges are frequently used to delay or extract monies from banks by plaintiffs' attorneys.

DBA International: Oppose bill as drafted due to several provisions in the bill that they see as being harmful to both consumers and the business community.

Linda Strumpf, Connecticut Creditor Bar Association: Section 7 (a) 2 - the "privilege log." In general, a privilege log refers to discovery which a party may withhold in a contested trial due to attorney-client privilege, work product privilege, or some other privilege. This requirement would unduly restrict legitimate collection efforts, compelling creditors to provide third parties with confidential and proprietary information that is not relevant to a consumer owing a particular debt. It is not relevant to the sufficiency of proof of the debt owed and to the consumer's ownership of the debt

Sec. 7 (c) requires that all documents be "duly authenticated and admissible in accordance with the rules of evidence." This does not make sense, given current practice, since documents attached to an affidavit of debt are sworn to as true copies of the originals. The rules of evidence apply to what is admissible at trial, and what a witness can testify to. This section will create a cottage industry for frivolous lawsuits against legitimate debt collectors.

Mag Morelli, Leading Age Connecticut: This bill creates unnecessary and unduly burdensome requirements for skilled nursing facilities seeking to collect debts both informally and through formal court actions. The existing debt collection statute already contains sufficient protections and the information that this bill requires can already be compelled through the litigation discovery process.

Adam Olshan, President, Connecticut Creditor Bar association: It is unduly burdensome to require national creditors to itemize pre-charge-off balances. The CFPB has concluded this very thing and the Hanna Consent Order therefore requires that collection attorneys review post-charge-off itemizations only. Creditors rely on the federal guidelines and examinations that render the charge-off balance as so inherently reliable and to itemize pre-charge-off balances would create vast undue challenge to our nation's financial services industry. Connecticut's judicial rules committee has, on three separate occasions, considered this exact question and in 2011 it crafted the following court rule commentary pertaining to itemizing lawsuit balances for default purposes: "it is the intention of this rule (Sec. 24-24) that the federally authorized charge-off balance may be treated as the “principal” and itemization regarding such debts is required only from the date of the charge-off balance”.

Reported by: Nick Raphael

Date: 03/28/2016