The DCLA was enacted in September 2020 and became operative on January 1, 2022. Persons subject to licensing under the DCLA generally were required to have applications on file by December 31, 2021.

Some of the terms used in the DCLA suggested that its scope may be similar to that of the Rosenthal Fair Debt Collection Practices Act (RFDCPA). The RFDCPA applies to third-party debt collectors, but also applies to a creditor collecting its own debts. Accordingly, retailers and others contacting their customers regarding late payments were uncertain as to whether they now needed to obtain licenses under the DCLA in order to engage in this everyday activity.

The proposed regulations seek to clarify the scope of the DCLA in a number of helpful ways. Among several important clarifications, the regulations—if adopted as proposed—would:

• Provide that a creditor seeking, in its own name, repayment of consumer debt arising from credit the creditor extended is not “engaged in the business of debt collection” for purposes of licensure under the DCLA unless one or more of three criteria are met, which criteria should not apply to most retailers.
• Provide that a person solely servicing debts not in default on behalf of such a creditor likewise is not engaged in the business of debt collection for purposes of licensure under the DCLA. Of note is that the proposed regulations expressly define default under the DCLA to mean “more than 90 days past due, unless the contract governing the transaction or another law provides otherwise.” Creditors and first-party collectors should therefore carefully evaluate how the relevant contracts define default when evaluating the applicability of the DCLA.
• Of interest to our health care clients, a health care provider, health care facility or hospital is not engaged in the business of debt collection for purposes of licensure if the only debt it collects is on its own behalf and is payment for medical or other services or products it provided.

As discussed in the Invitation for Comments, comments must be received by August 29, 2022. Retailers and other persons not otherwise clearly exempt from coverage may see ways in which the proposed rules might be further enhanced. However, it is also possible that certain advocacy groups may submit comments strongly objecting to the proposal and insist that even creditors collecting their own debts should be licensed under the DCLA. Accordingly, it is critical that persons who find the proposed regulations helpful submit comments supporting and possibly enhancing the DFPI’s efforts to provide much-needed clarity with respect to the scope of the DCLA.