As part of California’s recent triad of consumer financial services legislation, including AB-1864, which creates the Department of Financial Protection and Innovation and the California Financial Protection Law, and AB-376, which includes a new Student Loan Borrower Bill of Rights. California is also on the cusp of enacting a law requiring licensure of persons who are engaged in the business of collecting, on behalf of themselves or others, debts arising from consumer credit transactions with consumers who reside in California. This could include debt buyers, first-party and third-party collectors. The bill, SB 908 has been approved by both chambers and is awaiting the Governor’s signature. The Governor has until September 30th to sign or veto these bills, and it is expected that he will sign it into law.
The bill authorizes the Department of Business Oversight (“DBO”), soon to be known as the Department of Financial Protection and Innovation, to begin adopting regulations pertaining to the new licensing requirement on January 1, 2021. The licensing requirement would be enforced beginning on January 1, 2022. Any collector that submits an application before that date would be permitted to operate pending the approval or denial of their application. Separate licenses are not required for branch offices or for affiliates. To obtain a license, applicants will be required sign the application under penalty of perjury, pay an application fee, and undergo a criminal background check.
The bill exempts depository institutions; persons licensed under the state’s Financing Law, Residential Mortgage Lending Act, or Real Estate Law; persons subject to the Rental-Purchase Act; a trustee performing acts in connection with a nonjudicial foreclosure; and debt collection regulated by the Student Loan Servicing Act.
Additionally, the bill amends the Rosenthal Fair Debt Collection Practices Act to require a debt collector to include its license number in at least 12-point type in written or digital collection communications and it amends the Fair Debt Buying Practices Act to require a debt buyer to include its license number in written statements to debtors when attempting to collect consumer debts.
The bill also creates the Debt Collection Advisory Committee. This committee will be comprised of seven members, appointed by the commissioner of the DBO. The committee will advise the commissioner of the DBO on matters related to debt collection.
The DBO has the authority to enforce the provisions of this bill through investigations, suspension of licenses, promulgating regulations necessary to enforce the licensing and regulatory provisions of the bill, and issues orders and claims for relief.
If signed by Governor Newsom, debt collectors must obtain licenses by January 1, 2022 to compliantly engage in collections in California.
The requirements of SB 908 and AB-1864 overlap, as AB-1864 authorizes the DBO (which will be renamed as the DFPI upon the enactment of AB-1864) to promulgate regulations related to the registration of covered persons, as well as to issue rules related to the accurate disclosure of consumer financial products or services. Thus, it appears that under AB-1864, the DBO would have the authority to require debt collectors to register, in a way that would be similar to licensure, as well as the authority to require debt collectors and debt buyers to disclose their license numbers in communications to consumers.
SB 908 does not provide authority for the DBO to issue regulations regarding debt collection practices generally. However, AB-1864 would give the renamed DBO authority over “covered persons” relating to unlawful, unfair, deceptive, or abusive acts and practices and authority “to prescribe rules applicable to any covered person or service provider identifying as unlawful, unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.” Since “covered persons” under AB-1864 would include entities involved in debt collection, including licensed debt collectors, this UDAAP authority could be used by the renamed DBO to issue a regulation that identifies certain debt collection practices as unfair, deceptive, or abusive.