On February 24, 2025, California Assemblymember Avelino Valencia (D-Anaheim) introduced Assembly Bill (AB) 1166, which seeks to amend and expand the state’s existing Fair Debt Settlement Practices Act (the “Act”) to include certain business debt settlement services. The proposed Bill would expand the definition of “debt settlement services” to include those that provide debt relief services between a “commercial financing recipient” and one or more of the commercial financing recipient’s creditors. A “commercial financing recipient” is defined as “a person who receives commercial financing in an amount equal to or less than five hundred thousand dollars ($500,000) and who is responsible for repaying that debt.”
Currently, the Act regulates debt settlement services providers in the state by prohibiting providers from engaging in false, deceptive, or misleading acts or practices. Under the Act, debt settlement services providers must also provide a consumer with certain disclosures and meet other specific requirements and prohibitions. If passed, those that provide debt settlement services to “commercial financing recipients” would also be required to adhere to these regulations. Attorneys who charge fees for debt settlement services would not be exempt from regulation under the Act, as before.
This Bill represents a legislative frontier for expanding state regulatory oversight over those entities that provide business debt settlement services. Surprisingly, this proposal makes a minor tweak to existing law rather than creating a new statutory framework for regulating business debt settlement. If adopted in its current form, it will be interesting to see if this legislation will trigger any registration requirements for business debt settlement providers, as is currently required for debt settlement providers under the rules of the California Consumer Financial Protection Law (“CCFPL”).
We will continue to monitor the status of the California Bill and update you on its trajectory through the state’s legislature. If you would like to read the entire text of the proposed pieces of legislation, please click on the following link: https://legiscan.com/CA/text/AB1166/2025.
