A California law that took effect at the beginning of this year affects businesses and other organizations that need to collect debt owed to them by businesses.
Specifically, the Rosenthal Fair Debt Collection Practices Act (RFDCPA) expands consumer debt collection protections to include business debt up to $500,000. The new law applies both to B2B credit managers directly employed by a creditor and to third-party collectors hired by creditors to collect a debt.
Why does it matter?
Those who advocated for the new law initially sought to protect small businesses from harassment and threats by debt collectors whom they claimed were interfering with their ability to do business. However, the new law applies to any “covered commercial credit transaction.” As defined in the law, that includes debts as large as $500,000 that aren’t for “personal, family or household purposes.” That amount extends the reach of the law beyond just small business loans.
The law also modifies some previous definitions. For example, the definition of “debtor” now includes anyone who “guarantees an obligation related to a covered commercial credit transaction.” Further, the term “delinquent debt” now means a “covered debt, other than a mortgage debt, as specified, and would specify that these provisions apply to all delinquent covered commercial debt sold or assigned on or after July 1, 2025.”
The changes brought about by the RFDCPA mean that businesses collecting on debt owed to them by other businesses may face lawsuits for practices that were previously allowed under the law. The law specifies prohibited practices for collection telephone calls, for example. Among prohibited actions are:
- “Causing expense to any person for long distance telephone calls…by misrepresenting to the person the purpose of the telephone call….”
- “Causing a telephone to ring repeatedly or continuously to annoy the person called”
- “Communicating, by telephone or in person, with the debtor with such frequency as to be unreasonable, and to constitute harassment….”
Plaintiffs who take civil legal action against creditors for violating the law can collect up to $1,000 for each violation.
It’s crucial for business owners and the appropriate people in their companies to understand the ramifications of these changes for their collection efforts. Those with questions or concerns are wise to get legal guidance to help prevent unintentionally running afoul of the law.