New Debt Settlement Law in California

California’s Fair Debt Settlement Practices Act protects consumers who go to debt settlement companies for help.

By , Attorney

On October 4, 2021, Governor Gavin Newsom signed AB 1405, the California Fair Debt Settlement Practices Act, into law. The law sets requirements and prohibitions for debt settlement companies and payment processors (companies that manage the accounts used to facilitate debt settlements).

This law, which goes into effect on January 1, 2022:

  • prohibits debt settlement companies from using false, unfair, abusive, deceptive, or misleading statements or acts or practices
  • requires debt settlement companies to provide consumers with specific disclosures
  • gives consumers the right to cancel a debt settlement contract
  • requires debt settlement providers and payment processors to send statements of accounting at various times, and
  • provides a private right of action for legal violations.

So, consumers can sue debt settlement companies and payment processors if they don't comply with the law.

Effective date: January 1, 2022