When a borrower defaults, most people focus on the protections available to the debtor. California has strong consumer protection laws, and borrowers often understand their rights. But what about the rights of the creditor? Banks and credit unions have important tools they can use to enforce repayment, but those tools only work when they are used correctly and in full compliance with California law.
If your institution is navigating a difficult borrower situation, here is what you need to know about creditor rights in California.
The Laws That Govern Debt Collection in California
There are two major laws that regulate creditor rights.
First is the federal Fair Debt Collection Practices Act. This provides a national baseline for collection conduct.
Second is California’s Rosenthal Fair Debt Collection Practices Act. California goes much further than federal law. Unlike the federal rules, the Rosenthal Act applies directly to original creditors, which include banks and credit unions. That means your institution must follow the same restrictions that apply to debt collectors.
This is where many institutions unintentionally expose themselves to liability.
What Creditors Are Allowed to Do
Creditors in California do have strong rights, but those rights come with detailed requirements.
You can send written communication
You can send letters to the borrower, but the outside of the envelope cannot reveal anything related to a debt. California takes borrower privacy seriously. Even a harmless word like collections on the outside could violate the law.
You can make phone calls
You may call borrowers between 8 a.m. and 9 p.m. You cannot call them at work if you know their employer prohibits it. The goal is to balance your right to collect with the borrower’s right not to be harassed.
You can negotiate
Settlement discussions and payment plans are common and often more efficient than litigation. Many institutions resolve debt long before court becomes necessary.
You can file a lawsuit
If negotiations fail, you can sue. A judgment opens the door to powerful tools such as wage garnishment, bank levies, and property liens. These remedies are effective but must be executed correctly.
You have rights as a secured creditor
If you hold a mortgage, auto loan, or another secured interest, you may have the right to foreclose or repossess. These rights flow directly from the contract and are recognized by California law.
What Creditors Cannot Do
This is where institutions get into trouble. California draws clear lines between lawful collection and unlawful conduct.
Harassment is prohibited
No abusive language, no repeated calls intended to annoy the debtor, and no threats.
Deception is prohibited
You cannot misrepresent the balance, pretend to be someone you are not, or imply government affiliation.
Sharing information with third parties is prohibited
You cannot tell friends, neighbors, or employers about the debt. You can speak with a spouse, and in limited cases, you may contact others to locate the debtor. Anything beyond that can expose your institution to lawsuits and penalties.
This is why compliance is not optional. One mistake can create significant legal exposure.
Key Strategic Considerations for Financial Institutions
Beyond the day-to-day rules, there are broader issues every creditor must understand.
Know whether the debt is secured or unsecured
Secured creditors have collateral they can pursue. Unsecured creditors must go through the court system first.
Be aware of the Rosenthal Act expansion
As of July 1, 2025, certain commercial debts up to 500,000 are covered by the Rosenthal Act. That means many business loans now require consumer-style compliance.
Understand how bankruptcy impacts collection
A Chapter 7 case is very different from Chapter 11 or Chapter 13. Filing proofs of claim, seeking relief from stay, and deciding whether to pursue nondischargeability can dramatically affect your recovery.
Maintain complete documentation
If you cannot prove the debt, you may lose your right to collect. Record keeping is a critical part of protecting creditor rights.
Creditor Rights: A Real Example
A California credit union recently tried to collect on a commercial loan without realizing that new Rosenthal Act changes would apply. Because their internal systems were outdated, they risked litigation exposure and potential penalties. With experienced creditor counsel, the entire process could have been handled correctly from the start, protecting their rights and avoiding unnecessary risk.
Protecting Creditor Rights in California
Creditors have tools they can use, but in California, those creditor rights come with detailed compliance requirements. If you are a bank, credit union, or business lender, you need guidance that understands both the limitations you face and the powerful remedies that remain available.
At Western Law Corporation, we represent creditors nationwide and regularly handle complex California collection, foreclosure, and bankruptcy matters.
If your institution needs support with collections, compliance, or creditor litigation, please reach out today. I am here to protect your rights as a creditor and help your institution recover what it is owed.
