In an announcement to its subscribers sent electronically on May 23, 2022, the California Department of Financial Protection and Innovation (“DFPI”) notified applicants – and prospective applicants – for a license under California’s Debt Collection Licensing Act (the “Act”) that changes mandated by the Federal Bureau of Investigation (“FBI’) to state agency protocols for requesting federal background checks have caused “unforeseen” and unavoidable processing delays.
By way of background, the Act became effective September 25, 2020, with a licensing component that became operative on January 1, 2022.
The Act requires any person engaging in the business of debt collection in California to be licensed annually by the DFPI.
The DFPI previously announced that it would permit applicants who submitted a completed application before the operative date to continue engaging in licensable activity while their applications were processed, even if the DFPI had not approved or denied such applications. Correspondingly, applicants who did not submit an application by December 31, 2021 would have to wait until their applications were approved in order to engage in licensable activity.
The Act requires a person applying for a license to, among other things, submit to a criminal background check by the Department of Justice. In relevant part, the Act expressly provides that
[w]hen received, the Department of Justice shall transmit fingerprint images and related information received pursuant to this section to the Federal Bureau of Investigation for the purpose of obtaining a federal criminal history records check. The Department of Justice shall review the information returned from the Federal Bureau of Investigation and compile and disseminate a response to the commissioner.
Cal. Fin. Code 100008(b).
According to the announcement, the FBI notified the DFPI that “changes are needed to state agency protocols for requesting federal background checks.” The announcement did not elaborate on the nature or scope of those changes, nor did it provide a timeline for resolution of the delays in processing Debt Collection License applications.
Importantly, the DFPI specified in its announcement that it will take a no-action position for applicants that submitted their applications after December 31, 2021, permitting such persons to continue engaging in otherwise licensable activity without a license. However, the DFPI recommended that, for purposes of complying with provisions of the Act that require displaying a license number when contacting or communicating with debtors, license applicants “may indicate ‘license number pending’ or similar verbiage until a license is issued.”
The DFPI encouraged prospective licensees to continue submitting applications through NMLS, and advised that it will reach out to applicants with instructions for the submission of fingerprints for background checks when the process becomes available.
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