On Sept. 25, California’s Governor Newsom signed into law Senate Bill 908 enacting California’s Debt Collection Licensing Act or DCLA. Enforcement of the law begins Jan. 1, 2022, and regulations interpreting the law are anticipated after Jan. 1, 2021. The DCLA is a component of California’s overhaul of its consumer financial protection strategies which also reorganized existing departments, with the help of former CFPB Director Richard Cordray, into a Department of Financial Protection and Innovation or DFPI (formerly known as the Department of Business Oversight). This article examines the new requirements for licensing of debt collectors as well as insight from Courtney Reynaud, who on behalf of the credit and collections industry provided guidance and shared practical input to California during the legislative process.
As is the practice in California, on Nov.16 and Dec. 8, 2020, the DFPI held public “listening sessions” similar to those that the state sponsored concerning its privacy laws, with several objectives. First, the “open” virtual session summarized the anticipated timeline for publishing regulations under its new DCLA. Second, DFPI provided an expected timeline for debt collectors to register for a license under the DCLA. Finally, DFPI allowed the public to provide comments and questions, although only a small number were offered with a number of small businesses voicing concern about the tough economic times and concerns over onerous regulation. The DFPI did not offer any details about the actual application process and did not state whether California, like many other states, would become active in the association of state licensing authorities known as “NACARA.” In fact, the DFPI took comments and questions and recorded them but did not respond. However, as noted by Courtney Reynaud, President of Creditors Bureau USA and a past president of the California Association of Collectors, SB 908 authorizes the DFPI to use the NMLS electronic licensing platform.
The Debt Collection Licensing Act
It is important to note that the DCLA includes provisions that go well beyond collection agency licensing, which will be new in California. The DCLA gives new powers to the DFPI to promulgate regulations and increase powers to supervise and enforce collection activities such as unlawful, unfair, deceptive, or abusive acts of debt collectors collecting from California residents. In addition, the DCLA modifies California’s existing laws to add certain notices in letters to consumers. Also, the DCLA requires debt collectors and debt buyers to provide their license number in at least 12-point type in written or digital collections communications which would have to be harmonized with California’s Rosenthal Act, among other laws. If asked, collectors will have to provide their license information to consumers during telephone calls as well. The DCLA also establishes a seven-member “Debt Collection Advisory” committee to be appointed by the DFPI.
At the beginning of the first listening session, DFPI Commissioner Manuel Alvarez offered some background about the two rulemaking initiatives the DFPI will be handling in 2021. These initiatives will cover both the application process and enforcement. In each instance, the DFPI will entertain public comments. Both sets of rules are slated to be finalized in 2021. This path for rulemaking and ultimately enforcement is similar to the path California followed in implementing the California Consumer Privacy Act or CCPA (California Civil Code 1798.100). The CCPA itself has proven challenging for industries to implement and will be subject to further updates due to California’s recent passage of the California Privacy Rights Act of 2020 (passed by California voters as “Proposition 24” at the polls on Nov. 3, 2020).
Timeline for Debt Collector Licenses
Debt collectors who wish to collect from California consumers on and after Jan. 1, 2022, must apply for a license before Dec. 31, 2021. The application window for licensure will open in late summer or fall of 2021. Although the license applications submitted before Jan. 1, 2022, will not have been reviewed by Jan. 1, 2022, any agency seeking to collect from consumers in California must have submitted a complete licensing application before that date to remain compliant with the DCLA. DFPI expects to be reviewing applications and licenses in 2022; however, it is clear that agencies must have applied before 2022.
What does this mean for debt collectors?
As debt collectors know, navigating individual states’ license requirements requires serious organizational gymnastics. The year of lead time to complete the application required by the DCLA will be important. Agencies will need to harmonize their existing operations with the new requirements concerning written and oral communication with consumers. Debt collectors must also determine whether the new California Privacy Rights Act of 2020 will require synchronization along with the implementation of the DCLA.
Ms. Reynaud also pointed out that, while California dispensed with some of the financial hurdles for collection agencies as a part of the DCLA, bonding is still required and agencies still need to consider the costs of implementation. Also, Ms. Reynaud cautioned that California may define “debt collector” to include asset buyers and attorneys who use legal and court processes to collect debts. In the end, Ms. Reynaud expressed gratitude for the opportunity industry has had to share information with California lawmakers during the legislative process and is optimistic that the newly reorganized California regulator will retain the proactive and helpful approach it has employed in the past in licensing other industries.
Debt collectors and debt buyers are encouraged to keep an eye on California’s 2021 rulemaking in planning licensing and other consumer debt collection strategies.
