The California Department of Financial Protection and Innovation (DFPI) recently issued an invitation for comment on a proposed second rulemaking implementing aspects of the California Debt Collection Act (DCLA) along with draft text of the proposed rule. DFPI rulemaking would change its existing rules implementing the DCLA (Cal. Fin. Code §§ 100000). onwards) to add sections dealing with the Scope, Annual Report and Borrowing Amount Increase Provisions of the DCLA. The DFPI is soliciting public comments on the proposed rule by Monday, August 29, 2022.
The passage of the DCLA marked the first time California debt collectors were required to obtain a license from the DFPI. The California Legislature enacted the DCLA in September 2020, and the law went into effect on January 1, 2022. In addition to the power to enforce the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) and the Fair Debt Buying Practices Act (FDBPA), the DCLA gives the DFPI the power to license and oversee collection agencies. DPFI has completed rulemaking to implement the requirements for applying for the DCLA’s Debt Collector License and its currently proposed rule builds on that foundation.
Proposed scope of the licensing requirement
The text of the DCLA gave many the impression that the scope of the law would mirror that of the Rosenthal Act, which covers, inter alia, both third-party debt collectors and creditors collecting their own debts. If this were the case, the DCLA’s licensing requirement would apply to activities that may only be covered by licensing in a small number of other jurisdictions.
The proposed rule clarifies that “a person engages in the collections business and requires a license” from the DCLA “if the person (A) engages in the collections for profit or profit and (B) engages in the activity of a regular, frequent, or ongoing nature. The Advertising or otherwise offering the debt collection service for a fee constitutes the exercise of the debt collection business.”
The DFPI’s proposed rule contains several provisions that limit the scope of DCLA licensing requirements. The proposed rule would exempt the companies listed below (the exemption does not apply to parent companies, subsidiaries or affiliates):
- Original creditors seeking repayment of consumer debt incurred by him on his own behalf, unless:
- 5% or more of the lender’s annual profits during the preceding 12 months are from fees or charges added to the original consumer credit transaction that created the debt,
- An average of 10% or more of the creditor’s inventory has been taken into possession at least once in the previous 12 months, or
- The creditor has a monthly average of 25% or more of the gross amount of the creditor’s receivables that were ninety days or more past due in the preceding twelve months.
- A person solely servicing “non-defaulting debts” on behalf of an original creditor is not in the business of debt collection for purposes of licensing under the DCLA. As proposed, “default” means “more than 90 days past due, unless the contract governing the transaction or other law provides otherwise.”
- Healthcare providers, healthcare institutions, and hospitals that collect debts on their own behalf related to payments for medical or other services or products that they provide.
- Creditors whose collections activities are limited only to the student loan collections activities governed by the California Student Loan Servicing Act (Cal. Fin. Code §§ 28100). onwards).
- Governmental entities, including local, state or federal agencies that collect debts owed to them and public utilities when acting within their authority.
In addition, the proposed rule would add a definitions section affecting the scope of what counts as “consumer debt” to the DFPI’s debt collector eligibility requirements. The proposed rule states that neither residential rent debts nor debts to a homeowners association, as indicated, constitute consumer debts for purposes of the DCLA.
Annual reports and record keeping
In addition to the substantive clarifications discussed above, the proposed DFPI rulemaking would amend its rules to include new sections addressing the annual reporting and record keeping requirements applicable to DCLA licensees. The sections of the proposed rule that discuss licensees’ annual reports would require that each licensee’s report include prior year totals and dollar amounts relating to California debtor accounts collected and attempted to acquire California debtor accounts, a portfolio of a licensee’s California debtor accounts.
The proposed sections to amend the document retention rules would require licensees to keep records of all contacts or attempted contacts with individuals associated with a debtor account, including contacts initiated by the debtor and related parties. A licensee would also need to maintain information about the licensee’s business and employees, complaints against the licensee, and evidence that the licensee is not attempting to collect unpaid debts. This information must be retained for at least seven (7) years after the later of the following events:
- The account is settled in such a way that the debtor no longer owes anything;
- The licensee returns the account to the creditor; or
- The account is sold to another party or all attempts at collection are terminated.
Information about the Licensee and Applicant of CA Debt Collector
Under the DCLA, some applicants are allowed to conduct business while waiting to be rejected or approved. Information on applicants and licensees is available at https://dfpi.ca.gov/debt-collection-licensee/debt-collectors/.