Earlier this month, the California Department of Financial Protection and Innovation (DFPI) sent an email with the attention-grabbing subject line “Want to continue operating in California? You need to apply for a license with us.”
What the message referred to is the California Debt Collection Licensing Act (DCLA), which was added to the California Financial Code by Senate Bill 908. The DCLA provides that no person shall engage in “the business of debt collection” in California without first obtaining a license from the DFPI. There are exemptions for certain persons already subject to regulatory oversight, including banks, and finance lenders licensed under the California Financing Law.
The DCLA defines “debt collection” to mean any act or practice in connection with the collection of consumer debt, and defines “debt collector” to mean 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. Legislative history indicates the scope of coverage of the DCLA is intended to be similar to that of the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) (subject to the exemptions noted above), which generally extends to creditors as well as third-party debt collectors.
Based on the “person’s own behalf” wording and other defined terms in the DCLA, court decisions interpreting the Rosenthal Act, and the present state of guidance from the DFPI, many retailers and others servicing their own credit transactions likely will be surprised to find that they may be required to be licensed under the DCLA.
The licensing requirement takes effect January 1. In its message earlier this month, the DFPI stated, “[i]f you wish to continue operating as a debt collector in California starting from January 1, 2022, and have yet to apply for a license, you should review the application checklist and begin the application process now. Failure to submit an application by this deadline and continued operation without a license may result in enforcement actions being taken against you.” Applications are to be submitted using the NMLS.
The Manatt professionals identified in this newsletter are advising clients regarding the DCLA, including with respect to the threshold question of whether, based on their activities, they may be covered and, if so, options with respect to licensing, including in light of the rapidly approaching December 31 deadline.