Column: New California law blocks debt collectors from emptying your bank account

Gov. Gavin Newsom signed into law Monday a bill that will prevent debt collectors from emptying Californians’ bank accounts.

The bill — SB 616 — doesn’t block collectors from draining funds from the account of a person with IOUs. But it puts a halt to the practice once an individual’s combined account balances are down to $1,724.

That’s the minimum the state Department of Social Services says a family of four in California needs to get by each month.

The new law, which will take effect in September, “will provide some badly needed financial security for low-income Californians,” said state Sen. Bob Wieckowski (D-Fremont), the author of the legislation and a bankruptcy lawyer.

“At a time when our consumer protection laws are being weakened at the federal level, California is sending a message that we will stand with consumers,” he told me. “For Californians living paycheck to paycheck, that message cannot come at a better time.”

Debt collectors have various tools at their disposal to pressure people into coughing up some cash. These include garnishing wages, placing a levy on bank accounts and trashing your credit score.

California already has passed a law preventing collectors from taking more than 25% of people’s paychecks. SB 616 applies the same thinking to bank accounts — a move already taken by 16 other states.

The California Assn. of Collectors, an industry group, opposed the bill.

“The automatic nature of the exemption, the dollar amount of the exemption and the fact that it effectively applies to all of a consumer’s accounts make the bill unworkable,” said Tom Griffin, the association’s general counsel.

In fact, SB 616 doesn’t erase debt or let consumers off the hook. Debt collectors can still go after them.

What the law does is protect individuals and families from being financially wiped out by aggressive collection practices. It provides some breathing room to work out repayment terms with collectors.

The Western Center on Law and Poverty and the California Low-Income Consumer Coalition estimate that the average Californian owes $15,100 in non-mortgage debt, including medical, student, auto and credit card obligations.

They also estimate that the average apartment dweller faces more than $2,000 in monthly rental costs.

“This bill ends the debt-collector-takes-all approach that keeps people in poverty, increases the number of people opting not to use banks at all, and leaves more Californians one step away from financial disaster,” Wieckowski said.

“If we are serious about helping people escape poverty, then we should prevent debt collectors from emptying an account and leaving individuals with no way to cover day-to-day expenses.”

California’s passage of SB 616 illustrates the leadership position many states are taking in consumer matters. At the national level, the Trump administration has been systematically reducing consumer protections with its decidedly pro-business policies.

As I recently reported, the Consumer Financial Protection Bureau is proposing rules that would allow debt collectors to contact people via text and email.

It also wants to change how collectors inform you of your rights, allowing them to send a link to a web page rather than mail you a full rundown of federal protections.

Consumer advocates note that people have been trained for years by the Federal Trade Commission and other government agencies never to click on questionable links.

The bureau’s proposed rule change, therefore, reduces the likelihood that people will be informed of their rights, which include stopping debt collectors from calling you at work and being able to demand written proof of an obligation.

“They’d be making a disclosure, but basically, they would be sending it out into vapor,” said Andrea Bopp Stark, a staff attorney with the National Consumer Law Center. “It would be a phantom disclosure.”

California’s SB 616 won’t remedy that. But it will safeguard consumers from especially aggressive tactics, such as making off with all your deposited cash.