Senate Bill 91 and California Debt Collection Licensing Act Requirements for Collecting Rental Debt

Industry News,
Applicable to Rental Debt: Be Sure to Stay in Compliance With California and Federal Law

The California Department of Financial Protection and Innovation’s (DFPI) Commissioner Manuel Alvarez has recently issued guidance about compliance under the Debt Collection Licensing Act (DCLA) as applicable to California’s renter protections associated with COVID-19 rental debt. Under California law, COVID-19 rental debt includes any “unpaid rent or other unpaid financial obligation of a tenant” that came due between March 1, 2020 and June 30, 2021.

Senate Bill 91, the COVID-19 Tenant Relief Act (SB 91) includes the following renter protections for COVID-19 rental debt:

  • COVID-19 rental debt cannot be sold or assigned before July 1, 2021.
  • Starting July 1, 2021, COVID-19 rental debt cannot be sold or assigned if the debt pertains to a person “who would have qualified for rental assistance funding” under California’s emergency rental assistance program and if “the person’s household income is at or below 80 percent of the area median income (AM) for the 2020 calendar year.”
  • Creditors (a/k/a, landlords) cannot charge or attempt to collect late fees for COVID-19 rental debt if the renter has submitted a “declaration of COVID-19-related financial distress.”
  • With limited exceptions, those collecting COVID-19 rental debt in court must submit documentation showing that they have made “a good faith effort to investigate whether governmental rental assistance is available to the tenant, seek governmental rental assistance for the tenant, or cooperate with the tenant’s efforts to obtain rental assistance from any governmental entity, or other third party.”
  • Actions to recover COVID-19 rental debt may not be commenced before August 1, 2021, and any action to recover COVID-19 rental debt that was pending as of January 29, 2021 is stayed (postponed) until August 1, 2021.

Under California’s COVID-19 rental assistance program, a landlord may receive 80 percent of unpaid rent owed from April 1, 2020 through March 31, 2021 from government funds for a qualifying tenant if they agree to forgive any remaining unpaid rent for that period. To comply with applicable laws, debt collectors should ensure that they are not collecting rental debt that was paid or forgiven under California’s rental assistance program.

The DFPI also reminds debt collectors that under Federal law, specifically the federal Fair Debt Collection Practices Act (FDCPA) and the Consumer Financial Protection Act (CFPA), protections for California consumers exist from unfair, false, deceptive, or misleading representations, and harassment or abusive conduct in rental debt collection. For example, courts have held that falsely suggesting that you may initiate a lawsuit to collect a rental or other debt when you have no intention or ability to do so can be deceptive or misleading under the FDCPA.