California DFPI releases draft text for second regulation under Debt Collection Licensing Act

0

As noted in a previous blog post, the California Department of Financial Protection and Innovation (“DFPI”) issued on August 19, 2021 an Invitation to Comment on the second regulatory proposal under the Debt Collection Licensing Act (“DCLA”) . is currently reviewing a draft regulation relating to the DCLA’s scope, annual report, and record-keeping requirements, and has issued an “Invitation to Comment on Draft Text for the Second Proposed Rulemaking Under the debt collection licenses”.

The draft text modifies:

  • 10 CCR § 1850 to include a definition of the term “engaging in debt collection activity”. This proposed definition clarifies that “[a] the person is engaged in debt collection and must be licensed under Article 100001, subdivision (a) of the Financial Code if person (A) engages in debt collection for profit or profit, and (B) the activity is not regular, frequent or continuous in nature. Advertising or otherwise offering the debt collection service for compensation constitutes the exercise of a debt collection activity. »
  • 10 CCR § 1850.1 to clarify that the scope of the license requirement:
  • EXCLUDES employees of debt collectors, when acting within the scope of their employment with a licensed debt collector. The term “employee” is defined in the amended version of 10 CCR § 1850 to mean “a person whose manner and means of performance of the work are subject to the right of control or are controlled by a person and whose remuneration for the purposes federal income tax is reported, or required to be reported, on an international equivalent Form W-2 issued by the controlling person.
  • INCLUDES parent entities, subsidiaries, and affiliates of licensed debt collectors, to the extent they are not otherwise exempt under the DCLA.
  • EXCLUDES an “original creditor” (that’s to saycreditor requesting, in his own name, the reimbursement of a consumer debt arising from a credit granted by the lender), unless he meets one or more of the following criteria:
    • Five percent or more of the creditor’s annual profits over the past 12 months, whether incurred or received, constitute collection charges, late fees, or any other charges added to the original consumer credit transaction who created the debt;
    • Over the past 12 months, an average of ten percent or more of the creditor’s inventory has been repossessed at least once, either by the creditor directly or through a third party; Where
    • The creditor has a monthly average over the last 12 months of twenty-five percent or more of the gross amount of its accounts receivable ninety days or more past due.
  • EXCLUDES a person solely servicing non-defaulted debts on behalf of an “Original Creditor”. “Default” means more than 90 days late, unless the contract governing the transaction or another law provides otherwise.
  • EXCLUDES a healthcare provider, healthcare facility or hospital if the only debt it collects is in its own name and is payment for medical or other services or products provided by it.
  • EXCLUDES any U.S. local, state, or federal government agency when collecting a debt owed to a government agency. The term “governmental agency” includes a state, county, city, tribe, district, public authority, public agency, public judiciary entity, state-chartered public college or university, and any office, officer, department, division, board, council, or commission thereof.
  • EXCLUDES a person whose debt collection business is limited exclusively to debt collection regulated under the California Student Loan Servicing Act (Cal. Fin. Code §§ 28100 and following.).
  • EXCLUDES a utility when acting under the supervision of the California Public Utilities Commission pursuant to its authority under applicable California laws and regulations.
  • 10 CCR § 1850.2 to clarify the following points regarding “consumer credit transactions” and “consumer debt”:
    • Residential rental debt is not a “consumer debt” for purposes of the DCLA, unless it is a debt owed under a statement of covenants, conditions and restrictions. a homeowners association or other equivalent written agreement.
    • The debt resulting from the acquisition by a consumer of health care or medical services, the payment of which is deferred, is presumed to be a “consumer debt”.
    • Failure to clear a personal check does not create a consumer credit transaction under the DCLA.
  • 10 CCR § 1850.70 to list the exact information that must be included in each licensee’s annual report, which must be filed with the DFPI by March 15 each year pursuant to Cal. Fin. Code § 100021.
  • 10 CCR § 1850.71 to detail the document retention requirements that each licensee must follow when engaging in debt collection activity.

Interested parties are invited to submit comments, including comments outlining the potential financial impact of the proposed regulations by Monday, August 29, 2022. The DFPI requested that questions regarding the Invitation to Comment be directed to Emily Gallagher, Senior Counsel, at emily.gallagher@dfpi.ca.gov.

Share.

Comments are closed.