California Debt Collection Laws & Compliance Guide

At Midwest Service Bureau, we collect in California under our documented compliance program. This guide covers the essential compliance requirements for debt collection in the Golden State.

Licensing Requirements in California

California imposes strict licensing requirements on debt collection agencies through the Department of Financial Protection and Innovation (DFPI):

• Collector's License: Agencies that collect consumer debt in California must obtain a license from the DFPI unless a statutory exemption applies. This requires a $25,000 surety bond, background checks for principals and officers, and an annual report and annual fee; the license remains effective until suspended, revoked, or surrendered (Financial Code §§100014, 100020, 100021)
• Debt buyers: Under the California Debt Collection Licensing Act (DCLA), effective January 1, 2022, debt buyers are debt collectors and need the same license; separately, the Fair Debt Buying Practices Act bars a debt buyer from sending a written collection statement unless it possesses specified information about the debt, including the names of all purchasers after charge-off (Civil Code §1788.52)
• Branch registrations: Each physical office location in California requires separate registration
• Out-of-state agencies: Even agencies located outside California must obtain a license if collecting debts from California residents

The DFPI has enforcement authority to audit licensees, order violators to desist and to pay ancillary relief such as refunds and restitution, and suspend or revoke licenses. A person collecting without a required license can be ordered to desist and to pay ancillary relief (Financial Code §100005).

Additionally, California requires agencies to maintain a trust account for funds collected on behalf of clients and submit annual financial reports to the DFPI. Detailed record retention of at least four years is mandatory for all collection accounts.

Statute of Limitations on Debt

California's statutes of limitation for debt collection are governed by the Code of Civil Procedure:

• Written contracts: 4 years (CCP § 337)
• Oral contracts: 2 years (CCP § 339)
• Promissory notes: 4 years (CCP § 337); 6 years after the due date for a negotiable note payable at a definite time (Commercial Code §3118(a))
• Credit card debt: 4 years (classified as written contract)
• Domestic judgments: 10 years (CCP §683.020), renewable for further 10-year periods (§683.120(b)); a judgment against an individual on a medical-expense claim with under $200,000 of principal unpaid, or on a personal (consumer) debt with under $50,000 of principal unpaid, can be renewed only once, for five years, and not at all if it was already renewed on or before December 31, 2022 (§§683.110(c), 683.120(c))

A written acknowledgment or promise signed by the debtor can extend the limitations period (Code of Civil Procedure §360); for a promissory note, a payment of principal or interest restarts it, but no payment revives a claim that is already time-barred. A collector subject to Regulation F cannot sue or threaten suit on a time-barred debt.

Once the limitations period for a written contract or book account has run, no one may sue or start an arbitration or other legal proceeding to collect the debt (Code of Civil Procedure §337(d)), and a debt collector writing to collect a time-barred debt must tell the debtor that, because of the age of the debt, it will not sue (Civil Code §1788.14(d)).

Prohibited Practices Under California Law

The Rosenthal Fair Debt Collection Practices Act (Civil Code §§ 1788-1788.33) is California's state counterpart to the federal FDCPA, with a critical distinction: it applies to original creditors collecting their own debts, not just third-party collectors. Prohibited practices include:

• Harassment: Using obscene language, making threats of violence, calling repeatedly to annoy or harass, or publishing "shame lists" of debtors
• False representations: Misrepresenting the character, amount, or legal status of a debt; falsely claiming to be an attorney, government official, or credit bureau representative
• Unfair practices: Collecting unauthorized fees, threatening to garnish wages without a judgment, depositing post-dated checks before the written date, or contacting a debtor known to be represented by an attorney
• Communication restrictions: Contacting debtors before 8:00 a.m. or after 9:00 p.m., communicating with third parties about the debt, or contacting a debtor at work if the employer objects
• Written notice requirements: Failing to provide proper validation notices or the required disclosures about consumer rights

A collector is liable for actual damages, and a willful and knowing violation can add a court-set penalty of $100 to $1,000 in an individual action (Civil Code §1788.30). Separately, Civil Code §1788.17 applies the federal FDCPA remedies (15 U.S.C. §1692k), so in a class action the statutory damages for the class members other than the named plaintiffs are capped at $500,000 or 1% of the collector's net worth, whichever is less; actual damages are not capped.

Key California Statutes for Debt Collection

• Rosenthal Fair Debt Collection Practices Act: Civil Code §§ 1788-1788.33 — primary state consumer protection law for collections
• California Debt Collection Licensing Act (DCLA): Financial Code Division 25 — licensing requirements for collectors and debt buyers
• California Consumer Financial Protection Law: Financial Code §§ 90000-90019 — grants DFPI broad enforcement authority
• Fair Debt Buying Practices Act: Civil Code §§ 1788.50-1788.66 — additional requirements for debt buyers including documentation of chain of title
• Identity Theft provisions: Civil Code § 1788.18 — special procedures when a debtor claims identity theft
• Medical debt protections: Health & Safety Code § 127400 et seq. — charity care screening and billing requirements

Medical Debt Collection in California

California provides extensive protections for medical debt:

• Hospital Fair Pricing Act (as amended by AB 1020): before assigning a bill to collections or selling it, a hospital must send the patient a notice with a charity care and financial assistance application (Health & Safety Code §127425(e)); uninsured patients and patients with high medical costs at or below 400% of the federal poverty level qualify (§127405)
• SB 1061: Since January 1, 2025, medical debt may not be furnished to consumer credit reporting agencies (Civil Code §1785.27)
• Itemized billing: Healthcare facilities must provide detailed, itemized bills upon request
• Payment plans: patients eligible for discount payment get an extended payment plan (§127405), and while a patient seeking charity care or discount payment negotiates a reasonable payment plan in good faith, the bill may not be sent to a collection agency that has not agreed to follow the Act (§127425(g))
• Surprise billing protections: AB 72 and subsequent laws restrict balance billing for emergency and certain non-emergency services

Wage Garnishment Rules in California

California's wage garnishment rules are more protective than federal standards:

• Maximum garnishment is the lesser of 20% of weekly disposable earnings or 40% of the amount by which they exceed 48 times the state (or higher local) minimum hourly wage (Code of Civil Procedure §706.050)
• California's higher minimum wage ($16.90/hour for most employers from January 1, 2026) means significantly more income is protected
• Social Security, SSI, disability benefits, unemployment, and public assistance are fully exempt
• Social Security directly deposited into a bank account is exempt from a bank levy without a claim up to a set amount, and above that amount to the extent it consists of Social Security benefits (Code of Civil Procedure §704.080)
• A Claim of Exemption process allows debtors to protect additional income if garnishment would cause hardship

Compliance Best Practices for California Collections

Given California's complex regulatory environment, we recommend:

• Maintain current DFPI licensing and ensure all employees complete annual compliance training
• Implement robust systems to track statute of limitations across different debt types
• For medical debt, verify charity care screening has been completed before beginning collection
• Provide all required Rosenthal Act disclosures in initial communications
• Maintain detailed audit trails for all debtor communications
• Stay current with DFPI guidance and enforcement actions

For professional, compliant debt collection services in California, learn more about our California debt collection services or call us at (800) 362-0272.