Debt Collection Licensing Act
Are You Now Considered A Debt Collector?
On September 25, 2020, in furtherance of its constant efforts to protect consumers from unfair or deceptive acts or practices in the collection of consumer debt, Governor Gavin Newsom approved Senate Bill 908 – the Debt Collection Licensing Act (“DCLA”). The DCLA augments California’s Rosenthal Fair Debt Collection Practices Act by providing for the licensure, regulation, and oversight of California debt collectors, whether they are collecting on their own behalf or on the behalf of others (including debt buyers), by the Commissioner (“Commissioner”) of California’s Department of Financial Protection & Innovation (“DFPI”).
The DCLA is codified at Financial Code Division 25, Sections 100000, et seq.
The DCLA became effective on January 1, 2022. Under this new law, a person engaging in the business of debt collection must apply for a license through the Nationwide Multistate Licensing System and Registry (“NMLS”) in order to continue to operate in California pending the denial or approval of their application.
A debt collector who submits an application prior to January 1, 2022, may continue to operate in California pending the approval or denial of their application. Financial Code Section 1000000.5 (c).
Persons and Activities Requiring a License
All debt collectors and debt buyers who operate in California (or debt collectors and debt buyers who operate outside of California but are seeking to collect a debt from a debtor that resides in California) are required to apply for a license. A license is required for the licensee’s principal place of business and cannot be transferred or assigned. A separate license is not required for each individual branch office; however, the branch offices must be registered in the NMLS. Financial Code Section 100001 (a).
A “debt collector” is any person who, in the ordinary course of business, regularly (on the person’s own behalf or on behalf of others) engages in debt collection. The term includes any person who composes and sells or offers to compose and sell, forms, letters, and other collection media used or intended to be used for debt collection. The term “debt collector” includes debt buyer. Financial Code Section 100002. Affiliates who engage in the business of debt collection are required to apply for a license.
“Debt collection” means any act or practice in connection with the collection of consumer debt. A “debt buyer” is a person or entity that is regularly engages in the business of purchasing charged-off consumer debt for collection purposes, whether it collects the debt itself, hires a third party for collection or hires an attorney for collection litigation. “Debt buyer” does not mean a person or entity that acquires a charged-off consumer debt incidental to the purchase of a portfolio predominantly consisting of consumer debt that has not been charged off. “Charged-off consumer debt” is a consumer debt that has been removed from a creditor’s books as an asset and treated as a loss or expense. Financial Code Section 100002.
There are exemptions for depository institutions such as FDIC insured banks, credit unions, DFPI licensed finance lenders and brokers, DFPI licensed mortgage lenders and servicers, Department of Real Estate licensees, persons subject to the Karnette Rental Purchase Act, a trustee for a nonjudicial foreclosure, and debt collections regulated under the Student Loan Servicing Act. Financial Code Section 100001 (b)(1) and (c). However, all those exempted under the DCLA still remain subject to the provisions of the Rosenthal Fair Debt Collection Practices Act.
HOA Assessment Exception
Per the DFPI, routine HOA assessments do not constitute a “consumer credit transaction” as defined under the DCLA, and therefore do not constitute “consumer debt” under the Act. Since the collection of routine HOA assessments is not considered to be collection of “consumer debt,” such activity would not constitute being engaged in the business of debt collection and does not require licensure under the DCLA.
Unique Provisions of the DCLA
Please see below for provisions unique to the DCLA: (this is not, nor is this intended to be an exhaustive list – for a complete list of all requirements of the DCLA and powers of the Commissioner under the DCLA, please see Civil Code Sections 1788.11 and 1788.52 and Financial Code Sections 100003, 100004, 100005, 100006, 100007, 100008, 100009, 100011, 100012, 100013, 100014, 1000015, 1000016, 1000017, 100018, 100019, 100020, 100021, 100022, 100023, and 100025):
- A debt collector is prohibited from placing a telephone call without disclosing the caller’s identity (a licensed collection agency may use its registered alias name) and is prohibited from sending digital or written communications that do not display the license number of the debt collector in at least 12-point type.
- A person applying for a license is required to pay an application fee, sign the application under penalty of perjury, and submit to a criminal background check by the California Department of Justice (this includes submitting fingerprints). The Commissioner may also require the applicant to submit its accounts, books, and records for review in determining the eligibility of the applicant for a license.
- If a corporation, trust, or limited liability company is an applicant, the Commissioner must investigate the applicant and its principal officers, directors, trustee, managing members, and individuals owning or controlling, directly or indirectly, 10% or more of the outstanding beneficial interest or any individual responsible for the conduct of the applicant’s debt collection activities in California.
- Each licensee is required to file reports with the Commissioner under oath (including an annual report which is to be submitted by the licensee on or before March 15th of each year), maintain a surety bond of $25,000, submit to periodic examination by the Commissioner (at the licensee’s expense), and pay the Commissioner an annual fee representing the licensee’s pro rata share of all costs and expenses that were reasonably incurred in the administration of the DCLA (as estimated by the Commissioner).
- The Commissioner may suspend or revoke a license if the licensee violates the DCLA, the Rosenthal Fair Debt Collections Practices Act, and/or Civil Code Section 1788.50 et seq.
- The Commissioner may suspend or revoke the license of a debt collector if it does not cooperate with an examination or investigation; is insolvent, suspends payment of its obligations, or makes a general assignment for the benefit of its creditors, a receiver, liquidator, or if a conservator has been appointed for a licensee; or any fact or condition exists that, if it had existed at the time that the licensee applied for a license, would have been grounds for denying the application.
- For the purposes of investigating violations or complaints of the DCLA, the Commissioner may direct, subpoena, and/or order the attendance of, and examine under oath, any person whose testimony may be required about the consumer debt or account of the debtor.
- The Commissioner may issue a desist and refrain order to keep a company or individual from engaging in the business as a debt collector without a license or from violating the DCLA or the Rosenthal Fair Debt Collections Practices Act or Civil Code Section 1788.50 et seq. The Commissioner may also order the person or licensee to pay ancillary relief, including but not limited to refunds, restitution, disgorgement, and payment of damages on behalf of a person injured by the conduct or practices constituting the violation.
- Establishes the Debt Collection Advisory Committee, consisting of seven members appointed by the Commissioner, within the DFPI to advise the Commissioner on matters relating to debt collection.
It is important to identify if you are a debt collector within the meaning of the DCLA. If you are, then it is imperative that you apply for a license to continue collecting debt in California. If you need any assistance with determining if you are debt collector, the application process, and/or need further counsel on the application process of the DCLA, please do not hesitate to contact Doss Law, LLP.
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