by Hearthstone Legal Group | Feb 23, 2025 | bankruptcy, BANKRUPTCY LAW, constitution, creditors
Herbert N. Wiggins, Esq., HEARTHSTONE LEGAL GROUP, & Kyle Gurwell, Esq., LAW OFFICE OF KYLE GURWELL
As of January 1 and July 1, 2025, various parts of California Senate Bill 1286 go into effect. The bill includes a number of revisions to California’s consumer protection laws, broadly known as the Rosenthal Act.
Previously, this author noted how the updated law explicitly allows state government to penalize unfair behavior in a non-judicial foreclosure (for example, Civil Code Section 1788.1 and following, and Civil Code Sections 2923.5 and 2924f).
But the law does not stop there.
For example, the Rosenthal Act originally covered only consumer debts.
New Version: Recent amendments have expanded the Rosenthal Act to cover consumer debts that include court-ordered obligations in certain contexts. It also explicitly addresses predatory practices involving debts related to towing, parking citations, and repossession fees.
Commercial Transactions: A significant update under SB 1286 is the inclusion of certain covered commercial transactions. Specifically, this applies to debts related to small-business loans and commercial leases when the borrower is an individual or sole proprietor. These loans and leases must be primarily for business purposes but may fall under the act’s protections if the borrower faces abusive collection practices. This change reflects California’s recognition that some small business owners and sole proprietors may experience similar vulnerabilities to consumer debtors, particularly when they are personally liable for the debt.
In enforcing violations, the Rosenthal Act works to do the following:
California Rosenthal Act Violations:
Unfair Fees: Imposing unauthorized or excessive fees during repossession.
Credit Reporting Violations: Threatening to report false information to credit bureaus or withholding accurate credit reporting to coerce payment.
Medical Debt Violations: Pursuing collections despite insurance coverage disputes or failing to provide a breakdown of costs.
Housing-Related Collections: Using threats of eviction while demanding unjustified sums or failing to follow required legal procedures.
Service of Process Violations (SB 1286): Attempting to enforce a debt judgment after improper or deceptive service of legal documents.
Commercial Transaction Violations: Engaging in harassment, misrepresentation, or improper service related to small-business debts covered by the new provisions of SB 1286.
Penalties:
Statutory damages up to $1,000 per violation (similar to the FDCPA).
Actual damages, including emotional distress and financial harm.
Attorney’s fees and costs.
Class actions: California courts may apply the FDCPA guidelines for damages or create state-specific penalties depending on the case.
Furthermore, these penalties may be cumulative in particular cases.
CONCLUSION: Creditors are on notice to tread carefully in California.
These violations can cause significant emotional and financial distress for consumers and small business owners, which is why both federal and state laws provide strong recourse.
For example, including granting the Commissioner of California’s Department of Financial Protection and Innovation authority to regulate non-judicial foreclosure under the Rosenthal Act. (Civil Code section 1788.1 and following)
Additionally, changes to the California Homeowner’s Bill of Rights also added additional requirements for non-judicial foreclosures. Civil Code Sections 2923.5 and 2924f.
For those who do run afoul of California’s Rosenthal Act, the penalties can be severe. Damages are $1000 per violation, and potentially punitive damages. The Plaintiff can also seek costs and attorney’s fees from the offending party. Additionally, such behavior can be fined and enjoined under the Unfair Competition Law, Business & Professions Code §17200.
In light of California’s recent experience with wildfires and other disasters, it may be that, beginning in July 2025, debt collectors will have to much more carefully navigate how they seek to collect on mortgages, auto loans, auto leases, and other debts that impacted individuals owe as of that date.
by Hearthstone Legal Group | Jun 9, 2024 | BANKRUPTCY LAW, constitution, debt relief
The Great Recession, the economic downtown that spanned 2008 to 2012, was the worst economic crisis in the United States since the depression of 1929 to 1939. Federal Reserve History, The Great Recession and its Aftermath.
One of the outgrowths of the Great Recession was the Consumer Financial Protection Bureau, which sought to protect consumers from unfair, predatory, or illegal conduct by financial institutions:
Title 12, Chapter 53, Subchapter V of the U.S. Code contains the legislation that created and regulates the Bureau. Legal Information Institute, Cornell University School of Law.
In or about 2020, the Community Financial Services Association of America, Limited, and others brought suit in the 5th Circuit (located in the South, and known to be quite conservative), to have the funding source of the CFPB declared unconstitutional, and thus force Congress back to the drawing board with regard to funding the organization. The underlying goal was seemingly to deny funding to the CFPB and thereby defang it as a regulatory body. The 5th Circuit held that the CFPB’s funding was unconstitutional.
However, the federal government appealed the 5th Circuit ruling, and the US Supreme Court issued his ruling in May 2024, upholding the funding of the CFPB, and thus granting a lifeline to the agency itself.
The key argument in the Supreme Court was “source and purpose” form of funding of the CFPB, by which Congress grants an appropriation of up to $600 million for enforcement of the agency’s regulations, was unconstitutionally vague, and a breach of the Appropriations Clause, Art. I, §9, cl. 7. The Community Financial Services Association of America, Limited, argued that such funding would place no restrictions on CFPB’s funding authority, and represented an abdication of funding authority by Congress, in favor of the executive branch.
At oral argument and in its written opinion, the Supreme Court pushed back, pointing out that the Customs Service, from its beginning, and the US Postal Service, had funding that either was not subject to a fixed annual limit, or had the discretion to spend within specific bounds to effect their statutory mission.
Associate Justice Thomas, writing for the majority, said that:
“In short, the origins of the Appropriations Clause confirm that appropriations needed to designate particular revenues for identified purposes. Beyond that, however, early legislative bodies exercised a wide range of discretion. Some appropriations required expenditure of a particular amount, while others allowed the recipient of the appropriated money to spend up to a cap. Some appropriations were time limited, others were not. And, the specificity with which appropriations designated the objects of the expenditures varied greatly.”
. . .
“[The CFPB’s] funding statute contains the requisite features of a congressional appropriation. The statute authorizes the Bureau to draw public funds from a particular source—“the combined earnings of the Federal Reserve System,” in an amount not exceeding an inflation-adjusted cap. 12 U. S. C. §§5497(a)(1), (2)(A)–(B). And, it specifies the objects for which the Bureau can use those funds–to “pay the expenses of the Bureau in carrying out its duties and responsibilities.” §5497(c)(1).
“[Para.] Further, the Bureau’s funding mechanism fits comfortably with the First Congress’ appropriations practice . . .
“[Para.] For these reasons, we conclude that the statute that authorizes the Bureau to draw funds from the combined earnings of the Federal Reserve System is an “Appropriatio[n] made by Law.” We therefore hold that the requirements of the Appropriations Clause are satisfied.”
[Bold and italics added]
Applying this reasoning to the CFPB, the SCOTUS held at the term “appropriation,” as understood at the time of the adoption of the Constitution, did not require Congress to a fixed figure every year. And appropriation may validly be based upon a combination of both fees generated and Congressional grant, and moreover, need not be fixed as a required expenditure every fiscal year.
In the end, the legal questions were 1) does the Appropriations Clause of the Constitution bar Congress from giving an agency an upper limit budget appropriation, stating that the agency may spend no more than $XX in the fiscal year, rather than a fixed a dollar amount, and 2) does such funding violate separation of powers, by abdicating to the executive branch the decision or the extent of funding granted to the regulatory agency.
The Supreme Court answered “no” to both questions.
Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited, Docket No. 22-448, Decided May 16, 2024
The CFPB will live to fight another day.
THIS POST DOES NOT CONSTITUTE LEGAL ADVICE; PLEASE CONSULT AN ATTORNEY
by Hearthstone Legal Group | Mar 5, 2024 | bankruptcy, BANKRUPTCY LAW
Public benefits are frequently a part of bankruptcy proceedings. A debtor may have received worker’s compensation payments, or unemployment benefits. In California, worker’s compensation or unemployment benefits paid before the bankruptcy can be discharged; they are not seen as a non-dischargeable tax. Notrica v. State Comp. Ins. Fund (1999) 70 Cal.App.4th 911, 924-925, 939-940
The recovery of other forms of public benefits, made before the debtor files the bankruptcy petition, is also barred by the bankruptcy discharge; even the US government, as a creditor, cannot seek repayment of the overpayment of such benefits after the debtor’s discharge. In re Madigan, 270 B.R. 749, 752-753 (B.A.P. 9th Cir. 2001); Cooper v. Soc. Sec. Admin. (In re Cooper), BAP WW-23-1098-CBS, 12 & fn. 6, 7, & 8 (B.A.P. 9th Cir. Jan. 16, 2024) [unpublished]
But sometimes, the situation is more complicated. For example, if the debtor is on Social Security Disability Income, without interruption, both before and after the filing of a chapter 7 bankruptcy, and if there is an overpayment, the government may be able to recover that overpayment through reducing benefits after the bankruptcy discharge, under the doctrine of equitable recoupment. All that is required is a “logical relationship” between the pre-petition benefits received by the debtor, and the post-petition payments to the debtor by the government. If there is such a logical relationship, the post-petition benefits may be reduced by the pre-petition overpaymnent, under the doctrine of “equitable recoupment.” This recoupment neither violates the automatic stay, nor the discharge injunction. In re Williamson, 795 Fed.Appx. at 538 (quoting In re TLC Hosps. Inc., 224 F.3d 1008, 1014 (9th Cir. 2000).
The logical relationship test States the following:
“[C]ourts have permitted a variety of obligations to be recouped against each other, requiring only that the obligations be sufficiently interconnected so that it would be unjust to insist that one party fulfill its obligation without requiring the same of the other party.” In re Madigan, 270 B.R. at 755; Cooper v. Soc. Sec. Admin. (In re Cooper), BAP WW-23-1098-CBS, 12 & fn. 6, 7, & 8 (B.A.P. 9th Cir. Jan. 16, 2024) [unpublished]
In Cooper, a former Boeing worker suffered an injury on the job and began receiving workers compensation. He was later determined to be totally disabled, and started to receive workers compensation benefits in addition to a pension. Eventually, he filed his Chapter 7 petition, while he continued to receive uninterrupted SSDI benefits. Through a paperwork glitch, the fact that he was receiving workers compensation was not communicated to the Social Security administration, and eventually SSDI came to the debtor with a $73,000 bill for payments that it would not have made, had it been aware of the workers’ compensation payments.
The court noted that the debtor was not responsible for the paperwork glitch; he had notified the Social Security Office in Washington State of the debtor’s workers compensation case, but that information was never communicated to the primary office in Richmond, California. Nevertheless, the court concluded that the disability both before and after the Chapter 7 petition was the same; that there was a “logical relationship” between the pre-petition overpayments and the post-petition paid benefits; and therefore, under that therefore, the doctrine of “logical recoupment,” the debtor’s post-petition could be reduced, to offset the pre-petition overpayments.
Cooper is an “unpublished” opinion, so it is not authority for the proposition that it cites, but it does cite to numerous published opinions that provide for “equitable recoupment.”
THIS ARTICLE DOES NOT CONSTITUTE LEGAL ADVICE; PLEASE CONSULT WITH AN ATTORNEY
by Hearthstone Legal Group | Feb 23, 2023 | bankruptcy, Fair Lending, mortage, Real Estate
Where homeowner lost property to non-judicial foreclosure, Arizona’s “anti-deficiency law” meant that the junior mortgage, which was unsecured following the foreclosure, had been “abolished,” pursuant to previous Arizona Supreme Court ruling. Therefore, the lender’s reporting of the junior mortgage as a “charge off,” rather than an abolished loan, was inaccurate and misleading. The former homeowner/borrower had a colorable claim against the junior lender, pursuant to the Fair Credit Reporting Act, 15 U.S.C. §§1681, 1681a–1681x. The trial court’s erroneous decision to dismiss borrower’s lawsuit was reversed.
Gross v. Citimortgage, Inc., Citibank, NA, Equifax Information Services LLC, Experian Information Solutions, Inc., & Trans Union LLC (9th Circuit, 2022), 33 F.4th 1246
United States Court of Appeals, Ninth Circuit.
Argued and Submitted 11/17/2021 at San Francisco, California.
Opinion Issued 5/16/2022.
by Hearthstone Legal Group | Dec 29, 2022 | student loans
In Lujan v. Defenders of Wildlife (1992) 504 US 555, 575-578, a very conservative jurist, Associate Justice Antonin Scalia, wrote the following:
“To permit Congress to convert the undifferentiated public interest in executive officers’ compliance with the law into an “individual right” vindicable in the courts is to permit Congress to transfer from the President to the courts the Chief Executive’s most important constitutional duty, to “take Care that the Laws be faithfully executed,” Art. II, § 3. It would enable the courts, with the permission of Congress, “to assume a position of authority over the governmental acts of another and co-equal department,” Massachusetts v. Mellon, 262 U. S., at 489, and to become” ‘virtually continuing monitors of the wisdom and soundness of Executive action.’ “
This was another way of saying that there are cases in which the court should not get involved, such as those involving the specific statutory actions of a co-equal branch of government (i.e., “non-justiciable” cases).
Consequently, even when Congress passes a law that has a public benefit, it does not automatically grant citizens a “private right of action” to block that law. Any citizen who disliked any law could ask the courts to prevent it from going into effect, which would lead to chaos.
The student loan forgiveness program announced by President Biden is on hold. And it may be an example of what Justice Scalia warned of in Lujan. The Supreme Court will be hearing arguments regarding the loan forgiveness program in a few weeks. (“Supreme Court Agrees to Decide on Biden’s Stalled Student Loan Forgiveness Plan, “Los Angeles Times, December 1, 2022). The arguments against the program, based on the 8th Circuit Court of Appeal decision, and another decision in Texas, raise the specter of placing the Supreme Court in the position of deciding on the appropriateness of day to day, or administrative actions by both Congress and the President.
In other words, the current student loan case invites the courts to get involved in non-justiciable cases. Albert, Lee A., “Justiciability and Theories of Judicial Review: A Remote Relationship,” 50 So. Cal. Law Review 1139, 1165-1166 (1977)
Pres. Biden and Education Sec’y Cardona base the program on the 2003 HEROES Act, which authorizes the Secretary to “waive or modify any statutory or regulatory provision applicable to the student financial assistance programs” if the Secretary “deems” such waivers or modifications “necessary to ensure” at least one of several enumerated purposes, including that borrowers are “not placed in a worse position financially” because of a national emergency. 20 U.S.C. § 1098bb(a)(1), (2)(A).”
The “national emergency” cited by Pres. Biden and Sec’y Cardona was the COVID pandemic, which began in 2020, and is far from over. “Tripledemic Update: RSV, Covid And Flu,” Forbes, December 13, 2022.
In the 8th circuit case, the state of Missouri claimed that it would be harmed by receiving less repayment revenue, should be loan forgiveness program go into effect. State of Nebraska, et al. v. Joseph R. Biden, Jr., et al., Case No. Case No. 22-3179.
This reasoning is problematic because: 1) No loans have been forgiven, so no money has been lost; 2) research shows that when borrowers are released from paycheck to paycheck jobs as a result of debt relief, those borrowers find better paying jobs, which would cause them to pay more in taxes to the state (Harvard Business School/Working Knowledge, “Forgiving Student Loan Debt Leads to Better Jobs, Stronger Consumers,” May 22, 2019); 3) the government has several different laws upon which they can rely for student loan relief [e.g., Higher Education Act (“HEA”), beginning at 20 US Code Sec. 1082; the Federal Family Education Loan Program, beginning at 20 USC 1071; the Federal Claims Collection Act, found beginning at 31 USC Sec. 3701, the Direct Loan Program of Title IV of the HEA, and federal regulations, such as 31 CFR 30.70 and 31 CFR 902.1 (a); see Open Letter to Sen. Elizabeth Warren, Legal Services Center of Harvard Law School, September 14, 2020]. For example, the HEA states that the Secretary of Education has the power “enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption.” 20 U.S.C. § 1082(a)(6) p. 3 (emphasis added);
And 4) striking down the program is exactly the type of mischief that Justice Scalia warned against in Lujan, as stated above.
Finally, if the quibble is with the HEROES Act as a basis for the program, shouldn’t the Supreme Court defer to the Executive, based on this undisputed alternative authority? Or, simply require the President to resubmit the program, citing to his alternative statutory authority rather than the HEROES Act, instead of gutting the program?
We may have an answer in June 2023.
THIS POST DOES NOT CONSTITUTE LEGAL ADVICE; PLEASE CONSULT AN ATTORNEY
