California Debt Collection Licensing Act Registration Deadline Looms | Alston & Bird

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On September 25, 2020, California Governor Gavin Newsom approved Senate Bill 908 – enacting the Debt Collection Licensing Act (DCLA). The DCLA, effective January 1, 2022, requires that a person or entity carrying on debt collection business in California be licensed and provides for regulatory oversight of debt collectors by the Department of Financial Protection and innovation (DFPI). In accordance with the DCLA, debt collectors who submit a claim by December 31, 2021 may continue to operate in California pending denial or approval of their claim. On April 23, 2021, the DFPI Commissioner (the Commissioner) published a draft regulation (the Regulation) to adopt procedures for applying for a debt collection license under the DCLA. On June 23, 2021, after reviewing the public comments, the Commissioner issued a notice of regulatory amendments (the Amendments). On November 15, 2021, the Commissioner issued a second notice of regulatory amendments (the Additional Amendments).

The rule

The Regulations – among other things – define relevant terms, include information regarding application procedures, and contain other miscellaneous information regarding licensing. The definition of “debt collector” was much the same as the promulgated DCLA broad definition (which in turn is very similar to the Rosenthal FDCPA definition) and encompasses a wide range of activities related to consumer debt. , including mortgage debt. Likewise, the regulations define “debtor acquirer” identical to the existing definition in article 1788.50 of the Civil Code, which contains an exception for the purchasers of a loan portfolio mainly made up of unpaid consumer debts. See our previous article on DCLA for more information on the scope of the license requirement.

The Regulations designate the NMLS for the submission and processing of applications and referrals and are based on uniform NMLS forms and procedures. The application process includes the completion of the NMLS Uniform License Form (MU1), including by all Affiliates who need to be licensed under the same license. The application process includes the collection of information regarding other business names, web addresses used by the applicant, contact employees, organizational information (including information on indirect owners), detailed statement of business activities , reputable certificates and sample letters of recovery. Applicants do not need to provide bank account information in section 10 of form MU1 or information about a qualified person in section 17 of form MU1. Fingerprints (which are processed outside of the NMLS), criminal background checks and credit report authorizations are required for certain related persons including officers, directors, executive members, trustees, responsible persons and any person directly or indirectly holding 10% or more of the applicant. A background investigation report is also required for any such person who does not reside in the United States. Branches must also be authorized using NMLS Uniform Forms (MU3). Additional notice and filing requirements apply to any changes in the information submitted. The Regulations also contain bond requirements and describe the power of the Commissioner to review and examine applicants.

First notice of modification to the by-law

On June 23, 2021, the Commissioner released amendments which made several changes to the regulation, including revising the definition of “applicant” to clarify that an Affiliate who does not apply for a license is not an “applicant” – this revision, however, does not appear to have an impact on the ability of applicants to include affiliates under a single license. In addition, the Amendments added an English language requirement for documents filed with the DFPI. The changes also removed some requirements to provide the Commissioner with additional copies of documents submitted through the NMLS and otherwise revised the requirements to allow the processing of information primarily through the NMLS. The changes also eliminated the need to file certain fingerprint documents in the NMLS. Additionally, the changes added a requirement to explain derogatory credit accounts for anyone with credit report requirements. The changes also removed the requirements for applicants to provide information regarding compliance reports and the audit structure, the extent to which they intend to use third parties to perform any of their functions. debt collection, that applicants file a copy of their policies and procedures with the NMLS, and certain financial information collected annually. The amendments also eliminate the ability of the commissioner to change bond amounts.

Second notice of amendment to the Regulations

On November 15, 2021, the Commissioner published additional regulatory amendments that amended the definitions of “branch” and “debt collector”. “Branch” has been changed to any location other than the principal place of business of the applicant or licensee as long as “debt collection activity takes place” at that location and the location is “on display to the public as a business establishment where the money is received locally or held there. The additional changes state that “keeping a location open to the public” includes receiving postal correspondence and meeting with the public at the location, placing the location on letterhead, business cards and cards. signs, or make “any other representation to the public that the location is a commercial location.”

The definition of “debt collector” has been amended to refer to the definition set out in the DCLA, rather than actually defining the term. Thus, any future revision of the definition of DCLA will also automatically apply to the regulation.

Conclusion

Debt collection agencies and participants in California should anticipate additional DFPI regulations as aspects of DCLA continue to be developed – in the meantime, any licensed entity that has not already done so. should submit an application before the end of the year to ensure operations.

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