The California Department of Financial Protection and Innovation (DFPI) recently issued an invitation to comment on a second regulatory proposal to implement certain aspects of the California Debt Collections Licensing Act (DCLA) as well as a draft text of the proposed rule. The DFPI regulations would amend its existing regulations implementing the DCLA (Cal. Fin. Code §§ 100000 and following.) to add sections dealing with the DCLA’s scope, annual report, and bail amount increase provisions. The DFPI is inviting public comment on the proposed rule until Monday, August 29, 2022.
The enactment of the DCLA marked the first time that California debt collectors were required to be licensed by the DFPI. The California Legislature enacted the DCLA in September 2020 and the law became effective January 1, 2022. In addition to the authority to enforce the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) and the Fair Debt Buying Practices Act (FDBPA ) , the DCLA grants the DFPI the authority to license and supervise debt collectors. The DPFI has completed the development of a rule to implement the DCLA’s debt collection license application requirements, and its current rule proposal builds on that foundation.
Proposed scope of license requirement
The DCLA text left many with the impression that the scope of the law would mirror that of the Rosenthal Act, which, among other things, covers both third-party debt collectors and creditors collecting their own debts. If this were to be the case, then the DCLA licensing requirement would apply to activities that can only be licensed in a small number of other jurisdictions.
The proposed rule clarifies that “a person engages in the business of debt collection and must be licensed” from the DCLA “if person (A) engages in debt collection for profit or gain, and (B) the activity is of a regular, frequent or continuous nature. Advertising or offering a debt collection service for compensation constitutes the exercise of a debt collection activity.”
The DFPI’s proposed rule contains several provisions limiting the scope of the DCLA license requirement. The proposed rule would exempt the entities listed below (the exemption does not apply to parent entities, subsidiaries or affiliates):
- Original creditors seeking reimbursement, in their own name, of consumer debts they have incurred, unless:
- 5% or more of the creditor’s annual profits in the preceding twelve months were from fees or charges added to the original consumer credit transaction that created the debt,
- An average of 10% or more of the creditor’s inventory has been repossessed at least once in the preceding twelve months, or
- The creditor has a monthly average of 25% or more of the gross amount of the creditor’s accounts receivable being ninety days or more past due from the previous twelve months.
- A person who only handles “non-defaulted debt” on behalf of an original creditor is not engaging in debt collection activity for the purposes of obtaining a license under the DCLA. As proposed, “default” means “more than 90 days past due, unless the contract governing the transaction or another law provides otherwise”.
- Healthcare providers, healthcare institutions and hospitals collecting for their own account debts incurred in connection with payment for medical or other services or products provided by them.
- Creditors whose debt collection activity is limited solely to student loan collection activity regulated by the California Student Loan Service Act (Cal. Fin. Code §§ 28100 and following.).
- Government entities, including local, state, or federal government agencies collecting debts to them and utilities when acting within their authority.
In addition, the proposed rule would add a definition section affecting the scope of what is considered “consumer debt” to the DFPI’s Debt Collections Licensing Regulations. The proposed rule states that neither residential rental debt nor debt owed to a homeowners association, as specified, is consumer debt under the DCLA.
Annual reports and record keeping
In addition to the substantive clarifications discussed above, the DFPI’s proposed regulations would amend its regulations to include new sections addressing annual reporting and record retention requirements applicable to DCLA licensees. The sections of the proposed rule dealing with licensees’ annual reports would require each licensee’s report to include the total numbers and dollar amounts from the previous year related to California accounts receivable collected and attempted to be collected, to purchased California accounts receivable, to a licensee’s California accounts receivable portfolio.
The proposed sections amending the document retention rules would require licensees to maintain records of all contact or attempted contact with anyone associated with a debtor account, including contacts initiated by the debtor and associated parties. A Licensee shall also retain information relating to Licensee’s business and employees, claims against Licensee, and to show that Licensee is not attempting to collect any debts settled. This information must be kept for at least seven (7) years after the latest of the following eventualities:
- The account being settled in such a way that the debtor no longer owes anything;
- The licensee renders the account to the creditor; Where
- The account is sold to another party or all collection attempts end.
CA Debt Collection Applicant and Licensee Information
According to the DCLA, some applicants are allowed to do business pending rejection or approval. Information about applicants and licensees is available at https://dfpi.ca.gov/debt-collection-licensee/debt-collectors/.