California Debt Collection Licensing Proposal Raises Scope Concerns | Hinshaw & Culbertson – Consumer Hub

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Last month, the Department of Financial Protection and Innovation (DFPI) released draft regulations under the Debt Collection Licensing Act (DCLA). The regulations largely deal with procedural issues related to obtaining a license. However, the regulation proposed by the DFPI also appears to implicitly address the scope of the license requirement, potentially extending the category of license holders beyond what the legislation contemplates.

DCLA requires all persons who “engage in the business of debt collection “in California to obtain a license. Cal. Fin. Code § 100001 (a) (emphasis added). The proposed regulation, however, appears to provide that any” debt collector “must be licensed. See proposed Cal. Reg. tit. 10, §§ 1850.7, 1850.61 (a). The DFPI’s Initial Statement of Reasons envisages the same thing:

The proposed regulations would adopt. . . requirements for obtaining a license as a debt collector. . . Before the law was enacted, debt collectors were not required to be licensed in California. Their activities were subject to the Rosenthal Fair Debt Collection Practices Act of California. . . and the Fair Debt Buying Practices Act. . . These laws, however, do not provide for government oversight of debt collection practices. The law empowers the commissioner to enforce the requirements of the Rosenthal Law on Fair Debt Collection Practices and the Fair Debt Purchasing Practices Act.

The distinction between “engage[ing] in the area of ​​debt collection “and acting as a collection agent might make sense. The DCLA definition of” debt collector “is very broad. If the California legislature intended to require that all debt collectors are licensed under DCLA, not just those engaged in the debt collection business, it could easily have been provided that all debt collectors must be licensed. For example, there are d ” other California laws that prohibit both engaging in certain activities and acting in a certain capacity. California Entrepreneur Law prohibits either engaging in the business of an entrepreneur Where acting as a contractor when he does not hold a permit. Cal. Bus. & Teacher. Code § 7028. And, California real estate law prohibits a person, without a license, from engaging in the business of a real estate broker or seller, Where acting as a real estate broker or seller. Cal. Bus. & Teacher. Code § 10130. The plain language of DCLA only prohibits engaging in unlicensed debt collection activities.

This means that there may be instances where a party is a debt collection agent for the purposes of the substantive provisions of the Rosenthal Fair Debt Collection Practices Act (RFDCPA), but does not engage in the debt collection activity of the parties. purposes of the DCLA license terms. Notwithstanding DCLA exemptions for certain approved lenders and other parties, there will be individuals who, in the course of their business, will regularly collect debts owed to them, but in an ancillary or tertiary manner in relation to their main activity. For example, traders who extend loans to their customers under installment sales contracts or entities that acquire certain types of current obligations and only seek to collect overdue amounts themselves, might not engage in debt collection activity. These entities may well be subject to the substantive provisions of the RFDCPA as well as the new California Consumer Financial Protection Act, but without further guidance from the DFPI, it is not clear that they are engaging in conduct. debt collection activities.

We hope that the DFPI will clarify the scope of the DCLA licensing requirement before the promulgation of the final rules. Note that the comment period for these proposed regulations is still open and ends on June 8.e.


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