Collection agency license and exemptions | Miles and Stockbridge PC


With the new Consumer Financial Protection Bureau (“CFPB”) collection agency rule that came into effect on November 30, 2021,1 we thought we might help you better understand collection agency laws by giving you an overview of state licensing of collection agencies.

Each state does not license, register, issue a permit or require some kind of “approval deposit” (hereinafter, a “license”) for collection agencies. . Thirty-four states now allow collection agencies, with California being the most recent state to allow collection agencies, with the California Debt Collection Licensing Act (the “DCLA”) coming into effect on January 1, 2020. Collection agencies doing recovery work in California have done so. no need to have a license before January 1, 2020, but rather, for a collection agency to continue to have the authority to undertake collection efforts in California in 2022, it must submit an application for a collection agency license by January 1, 2022.2 California separately regulates the practices of collection agencies under its Robbins-Rosenthal Fair Debt Collection Practices Act.

Among the States which do not allow collection agencies, New York is the largest, but the New York legislature is once again considering licensing collection agencies and may still enact a licensing act in 2022. As of the date of this article, 16 more states do not. do not license collection agencies. Some of the other 16 states that don’t allow collection agencies include: Alabama, Delaware, Georgia, Kansas, Mississippi, Montana, New Hampshire, Oklahoma, Pennsylvania, South Dakota and Virginia. Some of the states that do not license collection agencies may regulate collection agencies, although they do not require collection agencies to be licensed. We know of a few cities that also allow collection agencies, including Buffalo, Chicago, New York, and Yonkers, New York. The District of Columbia does not allow collection agencies.

In some of the states that allow collection agencies, a licensing requirement is triggered not only by the collection of overdue debts for others, but can also arise if the entity purchases overdue debts. Some states whose collection agency licensing requirement applies to licensing those who buy past due debts include: Arkansas, Colorado, Connecticut, Maine, Maryland, and Washington . For example, under the Colorado Fair Debt Collection Practices Act, the term debt buyer refers to a person who deals with buying overdue or defaulting debt for the purpose of collection, which they collect on their own. debt, engages a third party for collection, or engages a litigation lawyer to collect the debt.3 In some states, including Hawaii, Idaho, Indiana, Iowa, New Mexico, and North Dakota, a collection agency licensing requirement will apply to a buyer of past due debt only when the buyer collects the purchased debt directly. Although New York State does not allow collection agencies, Acting Superintendent of Financial Services Adrienne A. Harris has promulgated regulations under certain laws she enforces that affect debt collectors and buyers. of debts.4

Banks are generally exempt from many, but not all, state collection agency licensing laws. Banks are exempt from collection agency licensing in certain states including: Alaska, Arkansas, Hawaii, Idaho, Illinois, Indiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, North Dakota, Rhode Island, Tennessee, Utah, Washington and West Virginia. In some states, the collection agency license exemption may apply to a state chartered bank, as well as a national bank. In some of these states, the exemption from a collection agency license for a bank is based on the satisfaction of one or more conditions, including, among other conditions, being insured by the FDIC or licensed to do business in the state.

The state collection agency license exemption for a bank is not universal, as some state collection agency licensing laws do not provide an express license exemption for a bank. Indeed, in recent years, a few states have repealed a collection agency license exemption for a state chartered bank, but not for a national bank, as a national bank can generally prevail over laws on debts. state licenses. Among the states whose collection agency licensing laws do not provide an express license exemption for banks, there are the collection agency licensing laws of Colorado, Iowa, Louisiana, from New Mexico and Texas. Although the state collection agency licensing law does not provide an express exemption from licensing a bank in such states, it deserves an investigation with the licensing regulator. collection agencies of those states to determine whether a bank is considered exempt, as regulators in those states may have the discretion to exempt a bank from collection agency licensing.

Only a handful of states exempt a branch or branch of a bank from licensing as a collection agency. Among the few states whose collection agencies law still provides a collection agency license exemption for a branch or affiliate of a bank are the collection agency licensing laws of Connecticut and Florida. Rhode Island’s Fair Debt Collection Practices Act expressly provides that a subsidiary or affiliate of a bank is not exempt from licensing. If the state mortgage finance licensing law does not exempt a branch or branch of a bank from being licensed as a lender or mortgage manager, then it is likely that the State collection agency licenses will also not exempt a branch or branch of a bank from collection. agency license.

Many of the states that license collection agencies also license residential mortgage loan managers and offer a collection agency license exemption for an entity that is (i) licensed in the state as a residential mortgage loan manager. , (ii) licensed in the State with the authority to manage residential mortgage loans, or (iii) manage residential mortgage loans.

Connecticut is an example of a state that exempts a residential mortgage manager from collection agency authorization. Connecticut licenses mortgage loan managers under the Mortgage Service portion of the Connecticut Code. Under the Mortgage Agents Part of the Connecticut Code, the term mortgage agent means (A) any person, wherever located, who, for that person or on behalf of the holder of a residential mortgage loan, receives payment principal and interest in connection with a residential mortgage loan, record that payment in the books and records of that person and perform other administrative functions that may be necessary to properly discharge the mortgage holder’s obligations under the mortgage contract, including, where applicable, the receipt of funds from the mortgagor to be held in escrow for the payment of property taxes and insurance premiums and the distribution of these funds to the tax authority and the company d ‘insurance, and (B) includes a person who makes payments to the borrower in accordance with the term of a home equity conversion mortgage or mortgage loan reverse ecaire.5 This exemption for an “account manager” under the Connecticut Collection Act is recognized by Connecticut regulators to apply to a residential mortgage manager. Some other state collection agency licensing laws that exempt from licensing a mortgage manager, or simply a “repairer,” include the collection agency licensing laws of: Arkansas , Colorado, North Carolina, North Dakota, Rhode Island, Tennessee, Washington and Wisconsin. In some of these states, the collection agency license exemption for a mortgage manager may be limited to servicing mortgages and would not apply to the collection of payments on other types of loans. Additionally, in some states, a deposit may need to be made by a mortgage manager to be considered exempt from that state’s collection agency licensing law. However, not every state that licenses collection agencies as well as residential mortgage managers does not exempt a licensed residential mortgage manager from licensing collection agencies.

This Financial Services Alert should provide sufficient insight into the licensing requirement of state collection agencies and some of the commonly available licensing exemptions. If you have any questions about a state’s collection agency licensing requirement or exemptions from the law, we’ve reviewed each state’s collection agency licensing laws and are available to answer questions about the application of state law to your business operations.

Opinions and conclusions in this article are solely those of the author, unless otherwise stated. The information contained in this blog is of a general nature and is not offered and can not be considered as legal advice for any particular situation. The author has provided the links mentioned above for informational purposes only and, in doing so, does not adopt or integrate the content. Any federal tax advice provided in this communication is not intended or written by the author for use, and may not be used by the recipient, for the purpose of avoiding penalties that may be imposed on the recipient by the recipient. IRS. Please contact the author if you would like to receive written advice in a format that complies with IRS rules and can be relied on to avoid penalties.

[1] Two CFPB collection agency rules were adopted on November 30, 2021. A rule covers the Fair Debt Collection Practices Act (“FDCPA”) prohibitions on harassment and abuse, fair or misleading representations and unfair practices by debt collectors when collecting consumer debts. The other rule clarifies the disclosures debt collectors must provide to consumers, including disclosing the existence of a debt before reporting this information to a consumer reporting agency.

[2] We wrote about DCLA on September 14, when the California Department of Financial Protection and Innovation invited interested parties to submit comments to DFPI regarding the new DCLA. A copy of our article on the new DCLA can be sent to you upon request. We can help you prepare a claim if you want the authority to act as a collection agency in California.

[3] See Colon. Rev. Stat. § 5-16-103 (8.5).

[4] See NYDFS has proposed changes to Part 1 of Title 23 of the New York State Official Compilation of Codes, Rules, and Regulations.

[5] See Connecticut Banking Act, Title 36a, § 36a-715 (3).

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