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David Lazarus: California debt law bars bank account wipeout

David Lazarus, Los Angeles Times on

Published in Business News

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 Association 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.

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