Fair Debt Settlement Practices Act.

Assembly Member Valencia proposes extending California's Fair Debt Settlement Practices Act to protect commercial debtors, establishing oversight of debt settlement services for business loans up to $500,000. The legislation mirrors existing consumer protections by requiring detailed disclosures, prohibiting deceptive practices, and enabling civil remedies for violations.

Under the expanded framework, debt settlement providers must furnish commercial clients with comprehensive contract terms, fee structures, and monthly accounting statements. The bill mandates clear disclosure of risks, including potential impacts on credit scores and tax implications of debt forgiveness. Providers cannot collect fees until reaching settlement agreements with creditors, and fees are capped at the difference between enrolled and settled debt amounts.

The measure preserves exemptions for licensed financial institutions, nonprofit organizations, and attorneys providing legal representation while establishing a four-year window for commercial debtors to pursue damages of $1,000-$5,000 per violation plus actual losses. Payment processors face parallel requirements regarding account management and timely distribution of funds upon contract termination.