Rosenthal Act

Rosenthal Act

Over the past year, our firm has defended – with increasing frequency – claims asserted against collection agencies that allege violations of California’s Rosenthal Fair Debt Collection Practices Act (“Rosenthal FDCPA”), Civil Code sections 1788, et seq. There have also been a few Rosenthal FDCPA decisions that have changed the litigation landscape in California. Given the increasing interest by the plaintiff’s bar in bringing Rosenthal FDCPA causes of action, we thought it would be useful to review this statute.  


The Rosenthal FDCPA was enacted in the same time frame as its federal counterpart, the FDCPA. The Rosenthal FDCPA contains many of the same collection agency obligations as the FDCPA. This article is not intended to discuss all of the nuanced differences between the two statutes, but will highlight a few. As originally enacted, the Rosenthal FDCPA did not permit the plaintiff to pursue a class action, unlike the FDCPA. (Compare Civ. Code § 1788.30(a) with 15 U.S.C. § 1692k(a).) And like the FDCPA when it was originally enacted, the Rosenthal FDCPA ostensibly excludes attorneys from its definition of debt collector. (See Civ. Code § 1788.2(c).) The FDCPA was amended, in 1986, to include attorneys in its definition of debt collectors.  


The Rosenthal FDCPA has been amended from time to time. 1 The recent amendment adding section 1788.17, which was enacted in 1999 and effective January 1, 2000, will greatly impact litigation brought against debt collectors. Section 1788.17 was added to the Rosenthal FDCPA, to incorporate “the remedies” and certain other obligations found under the FDCPA’s sections 1692b through 1692j. The Rosenthal FDCPA now includes and incorporates the obligations under those portions of the FDCPA addressing (1) “acquisition of location information” (§ 1692b), (2) “communications with the debtor and third parties” (§ 1692c), (3) “harassing and abusive” collection activities (§ 1692d), (4) “false and misleading” representations (§ 1692e), (5) “unfair” collection practices (§ 1692f), (6) “validation of debts” (§ 1692g), (7) application of payment for debtors with multiple debts (§ 1692h), (8) “venue” provisions (§ 1692i), and (9) “furnishing of deceptive collection forms” (§ 1692j). While Civil Code section 1788.17 does not explicitly incorporate 15 U.S.C. § 1692k, the damages provisions of the FDCPA, as noted above, section 1788.17 does state that the FDCPA’s remedies are to be incorporated. Courts will need to clarify a collector’s obligations where the obligations under the Rosenthal FDCPA differ from those under the federal FDCPA. By way of example, the federal FDCPA provides that a collection lawsuit shall be venued where the consumer signed the contract sued upon or where the consumer resides at the commencement of the action. (15 U.S.C. § 1692i(a(1)-(2).) The Rosenthal FDCPA, however, provides that collection litigation shall be prosecuted where the debtor incurred the debt, or where the debtor resides at the commencement of the action. (Civ. Code § 1788.15(b).) In a situation with a credit card debt where the debtor signed his or her application in San Francisco County, and then moved to Santa Clara County and purchased something with the credit card, it is unclear whether the debtor could be sued in San Francisco County or Santa Clara County without violating the FDCPA or the Rosenthal FDCPA. And there are other examples of potential conflicts between the two statutory schemes. (Compare Civ. Code § 1788.11(b) (requiring disclosure of name and potentially agency’s name on a telephone message) with 15 U.S.C. § 1692b (prohibiting disclosure to third parties, ostensibly including telephone messages, that the communication relates to a debt or the identity of the agency unless expressly requested).) There are certainly legal arguments to be made to clarify the collector’s obligations. For instance, to the extent that the Rosenthal FDCPA is inconsistent with the FDCPA, the Rosenthal FDCPA would be “preempted” or superseded by the FDCPA’s provisions. (See 15 U.S.C. § 1692n.) Almost none of the myriad of differences in obligations under the Rosenthal FDCPA and the federal FDPCA have not been addressed by any court.  


Probably more problematic for California collectors is the incorporation of the FDCPA’s “remedies” into the Rosenthal FDCPA. This has led to mischievous results. For example, despite the clear prohibition against class actions found under the plain language of the Rosenthal FDCPA (Civ. Code § 1788.30(a) (“Any debt collector … shall be liable to that debtor only in an individual amount … .”) (emphasis added)), the plaintiff’s bar now has successfully argued that the “class action remedy” afforded under the FDCPA (15 U.S.C. § 1692k(a)) is also available under the Rosenthal FDCPA. Notwithstanding the plain language to the contrary, the argument made by the plaintiff’s bar is strengthened by the legislative history to section 1788.17, all of which provides that the most important aspect of the amendment was, in fact, to provide for a class remedy under the Rosenthal FDCPA! (See, e.g. Senate Judiciary Committee, Senate Judiciary Committee Analysis on AB 969 (May 18, 1999) pp. 3-4.) Federal District Courts have agreed with this analysis, and for the first time have granted class actions based upon the Rosenthal FDCPA. (See Abels v. JBC Legal Group (N.D. Cal. 2005) 227 F.R.D. 541, 548; McDonald v. Bonded Collectors, LLC (S.D. Cal. 2005) 2005 WL 2008202.) The “incorporation” of the FDCPA’S remedies into the Rosenthal FDCPA does not stop there. Attorneys for debtors now are asserting an entitlement to not only the class remedies under the FDCPA – of 1% of net worth for the class (15 U.S.C. § 1692k(a)(2)(B)) – but also an additional entitlement under the Rosenthal FDCPA of 1% of net worth for the class (Civ. Code § 1788.17) – for a total of 2% of net worth as statutory damages to the class! This issue has not been litigated in, much less decided by, the courts. And since an additional 1% of net worth is typically not a large dollar figure for most collection agencies, it is likely that this issue will not be litigated for some time, if ever. Indeed, a similar issue exists with the statutory $1,000 individual damages under the FDCPA, and the duplicate $1,000 statutory damages to individuals under the Rosenthal FDCPA. The issue of duplicative statutory damages to individuals has been around for two decades but has yet to be decided in a published decision. There are arguments to be made that neither a class not an individual should be entitled to what amounts to “double dipping” or a double recovery. Furthermore, the FDCPA’s statutory damages were specifically limited to strike a balance between penalizing the abusive debt collector while not overburdening legitimate efforts to collect outstanding debts. (Thomas v. Pierce, Hamilton, & Stern, Inc. (N.D. Ga. 1997) 967 F.Supp. 507, 510-11 (“The Senate Report on the FDCPA reflects an interest by Congress ‘to protect consumers from a host of unfair, harassing and deceptive debt collection practices without imposing unnecessary restrictions on ethical debt collectors,’ including ‘nuisance suits.’”); see also 15 U.S.C. § 1692(e).) “The reasonable conclusion is that Congress decided that the $1,000 statutory award [and the 1% class statutory award] for reprehensible conduct represents a balance between the competing interests of the two and presents a reasonable deterrent against overzealous debt collectors.” (Thomas, supra, 967 F.Supp. 507, 510; see also Sanders v. Jackson (8th Cir. 2000) 209 F.3d 998, 1002 (“Thus, by making the extent of the penalty directly proportional to a percentage of the defendant’s net worth, Congress hoped that punishment might be meted out according to a business’s ability to absorb the penalty.”) (emphasis added).) This balance is arguably upset if California’s Rosenthal FDCPA can be used to double a collector’s liability exposure for damages. If this can be characterized as an inconsistency, then the federal FDCPA would preempt these double statutory damages. (See 15 U.S.C. § 1692n.) However, the FDCPA expressly states that a state law which provides greater protection is not inconsistent. (Id.) In other words, if larger statutory damages could be considered “greater” protection, then it is not clear that a preemption argument would be successful to prevent this practice. Furthermore, the legislative history materials make clear that the section 1788.17 amendment was intended to create greater penalties for unfair and disreputable collection activities. (See, e.g. Senate Judiciary Committee, Senate Judiciary Committee Analysis on AB 969 (May 18, 1999) pp. 3-4.) Why was that? The legislative history materials we have reviewed indicate that the California Legislature believed that the existing penalties were insufficient to curb unfair and illegal collection practices. (Id.) In light of the intent expressed in the legislative history, we believe it will be difficult to argue that the California legislature did not intend to provide debtors with a “double recovery,” by combining or “stacking” the damages available under the FDCPA with those under the Rosenthal FDCPA.