Big news out of California: The Rosenthal Fair Debt Collection Practices Act has officially been amended to exclude commercial and trade credit from its definition of “consumer debt.”
In plain terms — this is a huge win for credit professionals. For the first time, California law clearly distinguishes between consumer and commercial debt, removing years of uncertainty for credit teams doing business in the state.
What Changed
The Rosenthal Act, originally written to protect consumers, created confusion for trade creditors collecting on commercial accounts in California. Because the law didn’t clearly define what counted as “consumer” debt, business-to-business collections were sometimes interpreted under the same legal framework meant for personal or household debt — even when no consumer was involved.
That all changes on January 1, 2026, when the new amendment takes effect. Governor Gavin Newsom signed the amendment into law on October 1, 2025, giving credit teams long-awaited clarity.
Here’s the key update:
- Commercial and trade credit are now explicitly excluded from the Rosenthal Act.
- The legal definition of “consumer debt” will no longer include business-to-business obligations.
- This means commercial creditors can collect with confidence, without being subject to laws designed for consumer collections.
This long-overdue clarification is the result of sustained advocacy by the credit community — with special thanks to Chris Ng and the NACM Western Region for championing this cause.
Why It Matters
This is more than just a legal technicality — it’s a major operational shift for anyone managing receivables in California.
For years, credit leaders have operated in a gray area:
- Unsure if their commercial collection processes might trigger consumer-debt compliance issues.
- Forced to consult legal counsel before pursuing even straightforward B2B collections.
- Hesitant to standardize practices across states because of California’s ambiguity.
Now, the law finally aligns with business reality.
What this means for you:
- Clarity: B2B credit activity is officially recognized as commercial, not consumer.
- Confidence: Credit teams can pursue legitimate collections without unnecessary legal exposure.
- Consistency: National credit policies can now include California under the same operational framework as other states.
The Industry’s Reaction
Industry professionals are calling this a landmark moment for trade credit.
At the recent NACM Western Region Credit Congress, attendees described the announcement as “a game-changer” for credit departments and trade partners throughout California.
This update doesn’t just simplify compliance — it validates the work credit professionals do every day to extend, manage, and protect commercial credit responsibly.
What to Do Next
If your business extends trade credit in California, or works with customers who do, here are a few recommended steps:
- Review your credit and collection policies to ensure they align with the new definition.
- Update your training materials for teams handling collections or customer communications.
- Confirm your legal counsel and leadership are aware that commercial credit activity is now clearly outside the Rosenthal Act.
- Stay proactive — laws evolve, and Handle is here to keep you ahead of every update that affects how you get paid.
Need help reviewing your process?
Handle’s team can walk you through what this means for your business.
Handle’s Take
Handle’s mission has always been to help credit teams operate with confidence — automating lien rights, waivers, and payments across every state and jurisdiction.
This amendment reaffirms what the industry has known all along: trade credit is the backbone of construction and supply-chain commerce, and it deserves its own legal recognition.
We’re proud to help teams across the U.S. stay compliant, efficient, and empowered as regulations evolve.
Book a consultation with your Handle rep to get ahead of the changes taking effect in 2026.