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On September 25, California Governor Newsom enacted Senate Bill 908 enacting the California Debt Collection Licensing Act, or DCLA. Enforcement begins January 1, 2022, and regulations interpreting the law are expected after January 1, 2021. DCLA is a component of California’s overhaul of its consumer financial protection strategies that also reorganized existing departments , with the help of former CFPB Director, Richard Cordray, within a Department of Financial Protection and Innovation or DFPI (formerly known as the Department of Corporate Surveillance). This article examines the new debt collection agent licensing requirements as well as the advice of Courtney Reynaud, who, on behalf of the credit and collection industry, provided advice and shared a practical contribution to California during the legislative process.
As is the practice in California, on November 16 and December 8, 2020, the DFPI held public “listening sessions†similar to those the state sponsored regarding its privacy laws, with several objectives. First, the “open†virtual session summarized the planned timeline for the publication of regulations under its new DCLA. Second, the DFPI provided an expected time frame for debt collectors to obtain a license under the DCLA. Finally, the DFPI allowed the public to provide comments and questions, although only a small number were proposed, with a number of small businesses voicing concerns about tough economic times and concerns about onerous regulation. The DFPI did not provide any details on the actual application process and did not say whether California, like many other states, would become active in the association of state licensing authorities known as the “NACARA”. In fact, the DFPI took the comments and questions and recorded them but did not respond. However, as Courtney Reynaud, president of the Creditors Bureau USA and former president of the California Association of Collectors noted, SB 908 allows DFPI to use the NMLS electronic licensing platform.
The Debt Collection License Act
It is important to note that the DCLA includes provisions that go far beyond collection agency licensing, which will be new in California. The DCLA gives new powers to the DFPI to promulgate regulations and increase powers to supervise and enforce collection activities such as unlawful, unfair, deceptive or abusive acts by collection agents with California residents. In addition, the DCLA amends existing California laws to add certain notices in letters to consumers. In addition, the DCLA requires debt collectors and buyers to provide their license number in the form of at least 12 points in written or digital communications of collections that should be harmonized with the Rosenthal Act of California, between other laws. If requested, collectors will also need to provide their licensing information to consumers during phone calls. The DCLA is also setting up a “debt collection†advisory committee made up of seven members who will be appointed by the DFPI.
At the start of the first listening session, DFPI Commissioner Manuel Alvarez presented the two rulemaking initiatives that DFPI will manage in 2021. These initiatives will cover both the application process and the application. In each case, the DFPI will receive comments from the public. Both sets of rules are expected to be finalized in 2021. This route of rule making and enforcement is similar to California’s route to implementing the California Consumer Privacy Act or CCPA (California Civil Code 1798.100). The CCPA itself has proven difficult for industries to implement and will be subject to further updates due to California’s recent passage of the California Privacy Rights Act of 2020 (passed by voters Californians under the name “Proposition 24†at the polls on November 3, 2020).
Calendar for Debt Collection Licenses
Debt collectors who wish to collect from California consumers on or after January 1, 2022, must apply for a license by December 31, 2021. The license application window will open in late summer or fall 2021 While license applications submitted before January 1, 2022, will not have been reviewed until January 1, 2022, any agency seeking to collect from consumers in California must have submitted a full license application by that date to remain compliant. at DCLA. DFPI plans to review applications and licenses in 2022; however, it is clear that agencies must have applied before 2022.
What does this mean for debt collectors?
As debt collectors know, navigating each state’s licensing requirements requires serious organizational gymnastics. The one-year delay in completing the DCLA-required application will be significant. Agencies will have to harmonize their existing operations with the new requirements for written and oral communication with consumers. Debt collectors also need to consider whether the new California Privacy Rights Act of 2020 will require synchronization with the implementation of the DCLA.
Ms. Reynaud also pointed out that while California has removed some of the financial barriers for collection agencies under the DCLA, bonding is still required and agencies still need to consider implementation costs. Additionally, Ms. Reynaud warned that California could define “debt collector†to include asset buyers and attorneys who use legal and court proceedings to collect debts. Ultimately, Ms Reynaud expressed gratitude for the opportunity the industry had to share information with California lawmakers during the legislative process and is optimistic that the newly reorganized California regulator will retain the proactive and helpful approach. which it has used in the past to license other industries.
Debt collectors and debt buyers are encouraged to keep an eye out for California’s 2021 regulations for licensing planning and other consumer debt collection strategies.
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