Perspectives

California Expands Rosenthal Fair Debt Collection Practices Act

Collections , News , WFJ Business Services WFJ Law Firm

California has taken a significant step in debt collection regulation by expanding the Rosenthal Fair Debt Collection Practices Act (RFDCPA) to cover specific commercial debt obligations. This move introduces a new layer of legal exposure for creditors, lenders, and collection professionals involved in commercial finance-particularly those engaging with individual borrowers and personal guarantors.

As of July 1, 2025, covered commercial debts in California will be subject to the same strict collection practices previously reserved for consumer debts.

This includes avoiding:

  • Harassment or abusive collection practices
  • Contacting a debtor’s employer without authorization
  • Communicating with a represented debtor
  • Any deceptive or misleading collection tactics

Key Legal Update: What Senate Bill 1286 Changes

Traditionally, the RFDCPA applied only to consumer debts-obligations incurred primarily for personal, household, or family use. Now, the law will include:

  • “Covered commercial credit” and “covered commercial debt”- defined as debts owed by natural persons, including personal guarantors, for commercial purposes, if the total transactional value is $500,000 or less.
  • Types of debt affected include:
    • Commercial loans
    • Accounts receivable financing
    • Factoring and asset-based lending
    • Lease financing
    • Open-end credit lines

This means any individual-whether acting as a direct borrower or as a personal guarantor of a business obligation-will receive protections under the RFDCPA, provided the transaction meets the dollar threshold.

Effective Date and Scope

  • Applies to commercial debt entered into, renewed, sold, or assigned on or after July 1, 2025
  • Does not apply retroactively to prior transactions
  • Applies to original creditors as well as third-party debt collectors and debt buyers

Implications for Credit and Finance Professionals

Violations of the RFDCPA can result in:

  • Actual and punitive damages
  • Attorney’s fees and costs awarded to the debtor
  • Reputational and legal risk to your organization

Best Practices: Preparing for Compliance

 To position your business for regulatory readiness, we recommend the following steps:

Audit Your Commercial Collections Process

Review your current collection protocols, especially those involving personal guarantors or individual borrowers in California. Ensure all communications and outreach methods meet RFDCPA standards.

Implement Training for Staff and Third Parties

Educate internal collections teams, customer service representatives, and any third-party collection vendors on the new legal requirements. Emphasize prohibited conduct, including harassment, unauthorized employer contact, and deceptive communications.

Update Commercial Loan Documentation

Revisit your loan agreements and guaranty language to align with anticipated enforcement risks. Ensure clear delineation between business and personal obligations.

Strengthen Recordkeeping and Communication Controls

Ensure you have robust documentation of all borrower communications and can demonstrate compliance if challenged.

Partner with Legal Counsel Proactively

Engage experienced counsel to review your California-based commercial lending and collections operations. WFJ can help you identify exposure areas and implement changes before the law takes effect.

This new bill represents a growing trend of consumer-style protections being extended into the commercial finance space. For credit and finance professionals managing portfolios with individual guarantors or natural-person borrowers, this is the time to act.

WFJ is here to help you navigate this shift with clarity and confidence. Reach out to us today to learn how this new law may impact your business. 

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