The California Department of Financial Protection and Innovation (DFPI) is considering a proposed rule to add to the agency’s license application process and recently concluded a public comment period.
California became one of 35 states to require a license for debt collection effective Jan. 1, 2021, and agencies have until Jan. 1, 2022, to comply.
The Debt Collection Licensing Act (S.B. 908), from California State Sen. Bob Wieckowski, D-Fremont, was signed into law by Gov. Gavin Newsom in September 2020, as was legislation to create the DFPI—essentially a state version of the Consumer Financial Protection Bureau. The DFPI includes oversight of debt collectors and emerging financial technology products.
The California Association of Collectors Inc. (CAC), which worked closely with Wieckowski and his staff to amend S.B. 908 and subsequently supported the bill, is now advocating for changes to align proposed collection agency licensing requirements with the new state law.
The CAC responded to the DFPI’s proposals on the definition and registration of a branch office, working with vendors and surety bonds, among others, in comments filed with the agency earlier this month.
With the governor’s signature on the licensing bill, starting Jan. 1, 2021, the commissioner of the Department of Business oversight will l take all actions necessary to be able to fully enforce the licensing and regulatory provisions of this division, including, but not limited to, adoption of all necessary regulations by Jan. 1, 2022.
In the proposed rule, the DFPI defines a branch office for debt collectors as “a location other than the applicant’s principal place of business identified in a license application or an amended application.”
The CAC expressed concerns in its comments about how the DFPI will incorporate debt collection agencies with employees working from home into the branch location definition and the proposed rule.
“As a result of the COVID-19 pandemic, employers (including the members of CAC) were compelled to having [a] substantial segment of their workforce work from home,” CAC President Cindy Yalkin states in the comments. “As California has begun to emerge from the restrictions imposed as a result of the pandemic, many employers are considering (for a variety of reasons) having at least a portion of their workforce continue to work from home.”
S.B. 908 states that a separate license would not be required for each branch office. The CAC seeks confirmation on whether the DFPI will consider the home of an employee of a debt collector working from home as a branch office and if the agency will need to file a separate form to register each branch office.
While a license will not be required until 2022, the state has indicated the application and its checklist should be submitted as soon as possible. The law permits the state to use the electronic Nationwide Multistate Licensing System for the licensing process. There will also be a bonding requirement as part of the licensing process.
License applications will be due by Dec. 31, 2021, and the DFPI expects to begin the licensing process in late summer or fall this year. Debt collectors that apply for a license before the deadline in 2021 would be allowed to operate pending the approval or denial of the application.
Regarding the bond requirement, which guarantees compliance and payment, the CAC expressed in its comments that the surety bond should be based on the sums collected from California consumers, not all consumers nationwide. This is also outlined in S.B. 908, according to the CAC.
S.B. 908 also required the DFPI to establish a debt collection advisory committee, which includes Yalkin, president of States Recovery Systems Inc., as well as ACA International members Scott Hyman, attorney with Severson & Werson PC; Mark Naiman, president of Absolute Resolutions Corp.; Tamar Yudenfreund, senior director, public policy at Encore Capital Group and chair of ACA’s federal affairs committee; and Ohad Samet, president of TrueAccord Corp.
The seven-member committee will provide critical feedback to the DFPI as it creates its debt collection licensing program and will hold its first meeting July 28, ACA International previously reported.
The CAC noted in its comments that the proposed regulations do not refer to the advisory committee, the inclusion of which was an important part of the negotiations on S.B. 908.
The regulations should be revised to note the existence and role of the committee, as follows, according to the CAC:
“Section 1850.70 (Debt Collection Advisory Committee) The (DFPI) commissioner will establish a Debt Collection Advisory Committee to advise the commissioner on matters relating to debt collection or the debt collection business, including proposed fee schedules and the mechanics and feasibility of implementing requirements proposed in regulations.”
The DFPI expects the final rules on licensing, if adopted, will take effect on or around Nov. 19, 2021. The commissioner also expects to adopt additional regulations in 2022 in a separate rulemaking that would specify, among other things, the requirements for maintaining books and records, and surety bonds based on a licensee’s volume of debt collection, according to the DFPI proposal .
In other news, DFPI Commissioner Manuel P. Alvarez announced his resignation effective June 18, according to the DFPI’s June Bulletin . Chief Deputy Commissioner Chris Shultz will serve as acting commissioner and the governor’s office will appoint the next commissioner.
To read the complete CAC comments, click here.
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