California Debt Collectors Licensing Requirement

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Beginning on January 1, 2022, any person engaged in the business of debt collection in California must be licensed under the Debt Collection Licensing Act.  Licensed entities also are subject to additional requirements under the Act, such as developing compliance-focused policies and procedures, maintaining surety bonds, filing annual reports, and undergoing periodic examinations.  The Act made related changes to existing debt collection laws in the state as well.

For purposes of the Debt Collection Licensing Act, debt collection is “any act or practice in connection with the collection of consumer debt.”  A debt collector is “any person who, in the ordinary course of business, regularly, on the person’s own behalf or on behalf of others, engages in debt collection,” and this includes any person who composes and sells, or offers to do the same, forms, letters, and other collection media used or intended to be used for debt collection.  The term also includes a “debt buyer.”

An exemption from the Debt Collection Licensing Act, including from the licensing requirement itself, is available for certain entities licensed by the California Department of Financial Protection and Innovation (DFPI), such as DFPI-licensed finance lenders and brokers under the California Financing Law, and DFPI-licensed mortgage lenders and servicers under the California Residential Mortgage Lending Act.  Exemptions also apply to, among others, depository institutions and California Department of Real Estate licensed agents.

The license application will be available through the NMLS website starting September 1, 2021.  As provided by the DFPI, an applicant who submits an application by December 31, 2021, may continue to operate in California pending the denial or approval of their application.  Information about laws and regulations related to the Debt Collection Licensing Act is available here.  The DFPI also made available answers to certain Frequently Asked Questions.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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