On Sept. 25, 2020, California Gov. Gavin Newsom approved Senate Bill 908 which creates the “Debt Collection Licensing Act.” The licensing provisions become operative Jan. 1, 2022, with the licenses to be issued by the Commissioner of Business Oversight.
Pursuant to the act, a license would be required for any persons that “engage in the business of debt collection” in California, meaning the debt collector is either: 1) located in California; or 2) located outside California and collecting or attempting to collect from California debtors.
The definitions used in the bill are similar to those found in California’s Rosenthal Fair Debt Collection Practices Act, Cal. Civ. Code § 1788, et seq. “Debt collector” is defined as “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.” In turn, “debt collection” is “any act or practice in connection with the collection of consumer debt,” with “consumer debt” meaning “money, property, or their equivalent, due or owing, or alleged to be due or owing, from a natural person by reason of a consumer credit transaction,” including mortgage debt and charged-off consumer debt.
Thus, subject to certain exclusions, the provisions apply to original creditors, third-party collection agencies and collection law firms. Notable exclusions include depository institutions and student loan servicers.
The legislation requires that licensees must, among other things:
- Develop policies and procedures reasonably intended to promote compliance;
- Submit to periodic examination by the commissioner;
- Maintain a surety bond in a minimum amount of $25,000;
- Pay an annual fee of not less than $250;
- Pay a pro rata share of all costs and expenses reasonably incurred in the administration of the act based upon their proportion of net proceeds generated by California debtor accounts in the preceding year.
As to how the commissioner will determine a licensee’s pro rata share, each licensee must file a report that will be publicly accessible, disclosing for the prior year:
- The total number of California debtor accounts purchased or collected on;
- The total dollar amount of California debtor accounts purchased;
- The face value dollar amount of California debtor accounts in the licensee’s portfolio;
- The total dollar amount of California debtor accounts collected and the total dollar amount of outstanding debt that remains uncollected; and
- The total dollar amount of net proceeds generated by California debtor accounts.
As with most licensing regimens, the Department of Business Oversight will have the power to investigate complaints, issue subpoenas, levy fines, and suspend or revoke licenses.
Noteworthy aspects of the legislation include preemption of local debt collection licensing, issuance of a single license to affiliated companies and no branch office licensing.
The legislation also creates a Debt Collection Advisory Committee consisting of seven members, one of which will represent consumers. The committee will advise the commissioner on debt collection issues, including “the mechanics and feasibility of implementing requirements proposed in regulations.”