California Injury Attorney Blog

Fair collections law in the state of California is regulated by California's Fair Debt Collection Practices Act, also known as the Rosenthal Act. The law provides consumers with protections similar to those found in the federal Fair Debt Collections Practices Act. California law does differ slightly in the areas of regulating and defining collection agencies. California law also applies to the original owner of the debt, unlike its federal counterpart.

Debt collectors often sell outstanding debts to collection agencies. In California, debt collectors, with the exception of health clubs, are not required to inform debtors that the debt has been sold. California has no special laws requiring the licensing of collection agencies. Collection agencies operating in the state are not required to post a bond as they are in many other states. The state requires collection agencies to operate within the boundaries of the California's Fair Debt Collection Practices Act, also known as the Rosenthal Act. The law regulates debt collection practices not only of collection agencies, but also the original owner of a debt.

The Rosenthal Act was passed in 1977. It regulates debt collection not only of collection agencies, but also the original owner of a debt. The law defines what constitutes harassing behavior by debt collectors and also details what collection methods are acceptable. For instance, when first contacting a consumer by phone, a debt collector must state the purpose of the contact and clearly state that any information obtained from the consumer will be used toward that end. The collection agency must follow up the telephone contact in writing. An agency may contact your employer only under specific conditions. Phone calls are limited to between 8 a.m. and 9 p.m.

The Rosenthal Act provides procedures for disputing debts and also for filing unlawful collection complaints against collection agencies. After receiving written notice of a debt, the debtor has an opportunity to dispute the debt. From there, the dispute can move to mediation, although this is not required. A collection agency may sue the debtor in Superior Court but not Small Claims Court. If a creditor violates the terms of the Rosenthal act, a debtor may file a civil lawsuit against the collection agency. For every proven violation, the debtor is entitled to financial compensation between $100 and $1,000.

Under California Law, collection agencies are allowed to continue adding interest to your outstanding debt, depending on the type of debt. The consumer may ask the agency to detail how interest is being applied and at what rate. This should be done in writing. Any application of interest must be specified in the contract for the original debt.

Credit agencies cannot threaten to report your debt to a credit bureau unless the agency is already a customer of the bureau and it actually does report you to the bureau. If you have disputed the debt, the agency must report that information to the credit bureau as well. Agencies must also update your credit report after you have paid an outstanding debt. Agencies are not legally required to remove any negative information from your report, although that issue is always negotiable.

Continue reading "Collection Laws Attributable to The State of California" »

A security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation, usually the payment of a debt.It gives the beneficiary of the security interest certain preferential rights in the disposition of secured assets. Such rights vary according to the type of security interest, but in most cases, a holder of the security interest is entitled to seize, and usually sell, the property to discharge the debt that the security interest secures.

A secured creditor takes a security interest to enforce its rights against collateral in case the debtor defaults on the obligation. If the debtor goes bankrupt, a secured creditor takes precedence over unsecured creditor in the distribution.

There are other reasons that people sometimes take security over assets. In shareholders' agreements involving two parties (such as a joint venture), sometimes the shareholders will each charge their shares in favor of the other as security for the performance of their obligations under the agreement to prevent the other shareholder selling their shares to a third party. It is sometimes suggested that banks may take floating charges over companies by way of security - not so much for the security for payment of their own debts, but because this ensures that no other bank will, ordinarily, lend to the company, thereby almost granting a monopoly in favour of the bank holding the floating charge on lending to the company.

Some economists question the utility of security interests and secured lending generally. Proponents argue that secured interests lower the risk for the lender, and in turn allows the lender to charge lower interest, thereby lower the cost of capital for the borrower. Compare, for example, interest rates for a mortgage loan and for a credit card debt.

Detractors argue that creditors with security interests can destroy companies that are in financial difficulty, but which might still recover and be profitable. The secured lenders might get nervous and enforce the security early, repossessing key assets and forcing the company into bankruptcy. Further, the general principle of most insolvency regimes is that creditors should be treated equally (or pari passu), and allowing secured creditors a preference to certain assets upsets the conceptual basis of an insolvency.

More sophisticated criticisms of security point out that although unsecured creditors will receive less on insolvency, they should be able to compensate by charging a higher interest rate. However, since many unsecured creditors are unable to adjust their "interest rates" upwards (tort claimants, employees), the company benefits from a cheaper rate of credit, to the detriment of these non-adjusting creditors. There is thus a transfer of value from these parties to secured borrowers.
Most insolvency law allows mutual debts to be set-off, allowing certain creditors (those who also owe money to the insolvent debtor) a pre-preferential position. In some countries, "involuntary" creditors (such as tort victims) also have preferential status, and in others environmental claims have special preferred rights for cleanup costs.

The most frequently used criticism of secured lending is that, if secured creditors are allowed to seize and sell key assets, a liquidator or bankruptcy trustee loses the ability to sell off the business as a going concern, and may be forced to sell the business on a break-up basis. This may mean realising a much smaller return for the unsecured creditors, and will invariably mean that all the employees will be made redundant.

For this reason, many jurisdictions restrict the ability of secured creditors to enforce their rights in a bankruptcy. In the U.S., the Chapter 11 creditor protection, which completely prevents enforcement of security interests, aims at keeping enterprises running at the expense of creditors' rights, and is often heavily criticised for that reason. In the United Kingdom, an administration order has a similar effect, but are less expansive in scope and restriction in terms of creditors rights. European systems are often touted as being pro-creditor, but many European jurisdictions also impose restrictions upon time limits that must be observed before secured creditors can enforce their rights. The most draconian jurisdictions in favour of creditor's rights tend to be in offshore financial centres, who hope that, by having a legal system heavily biased towards secured creditors, they will encourage banks to lend at cheaper rates to offshore structures, and thus in turn encourage business to use them to obtain cheaper funds.

Continue reading "Security Interests have Preferential Rights in the Disposition of Secured Assets" »

Many Americans experience a time when their financial obligations become overwhelming and they are unable to pay all of their outstanding obligations on time. A debtor who defaults on a secured loan may face the threat of property repossession. A creditor can repossess property only if the creditor has a valid security interest in that property and if the creditor follows the proper legal procedures for repossessing the property says California Business Lawyer Steven C. Peck.

The specific laws regarding property repossession vary from state to state but generally include:

· The Creditor Must Have a Valid Security Interest in the Property: that means that the security interest must have been created in compliance with all state laws. In order to enforce a security interest, the creditor must not only enter a binding loan contract creating the security interest but also file, or record, the security interest with the state in order to retain a priority interest in the secured property.

· You Must be in Default on the Loan or Fail to Pay the Accelerated Loan: your loan document explains when you are in default on the loan and when the creditor may demand that you pay the remainder of the loan. If you have been making your regular payments on time then you are likely not in default on the loan and the creditor probably does not have the right to repossess your property.

· You Must be Given Notice and the Right to Cure: most states require creditors to provide notice to debtors prior to repossessing property. The notice usually contains the legal authority the creditor has to repossess the property. It also provides debtors with a certain amount of time to pay the loan and any outstanding fees or penalties. If the debtor pays his or her obligations within that time then the creditor loses the right to repossess the property. However, if the debtor does not pay his or her obligations by the date contained in the letter then the creditor has the legal right to repossess the property.

· The Creditor may not disturb the peace : a creditor has the right to repossess property, without a court order, but only if it can be done without breaching the peace. That means that the creditor may not force entry to your home, intimidate you, or do anything unlawful to obtain custody of the property. For example, if a creditor is repossessing your car then the creditor may take possession of the car that is parked in a parking lot or your driveway but may not break into a locked garage to get the car. If the car, of other property, is out of reach and the debtor refuses entry then the creditor would need to seek assistance of the court to obtain the property.
If the creditor violates any of your rights then the property repossession may have occurred illegally and you may have the right to compensation.

Continue reading "The Threat of Repossession Upon the Default on a Loan: Valid Security Interests" »