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DFPI issues proposal on debt collector licensing applications

Licensing State Issues State Regulators DFPI Debt Collection NMLS

Recently, the California Department of Financial Protection and Innovation (DFPI) issued a notice of proposed rulemaking (NPRM) to adopt new requirements for debt collectors seeking to obtain a license to operate in the state. As previously covered by InfoBytes last September, California enacted the “Debt Collection Licensing Act” (the Act), which requires a person engaging in the business of debt collecting in the state, as defined by the Act, to be licensed and provides for the regulation and oversight of debt collectors by DFPI. Under the Act, debt collection licenses will be required starting January 1, 2022; however, debt collectors who submit applications before January 1, 2022 will be allowed to operate while their applications are pending.

Among other things, the NPRM seeks to:

  • Include new sections for definitions of key terms, such as affiliate, debt buyer and debt collector.
  • Adopt several licensing application forms and require applicants to apply for a license through the Nationwide Multistate Licensing System & Registry (NMLS).
  • Provide requirements for obtaining a debt collector license, including for affiliates applying for a single license.
  • Add other licensure requirements, including requiring applications to (i) identify all direct owners, executive officers, and indirect owners; (ii) include the principal place of business, in addition to all branch locations; (iii) submit background checks and fingerprints; (iv) submit to a credit report check; and (v) post surety bonds of at least $25,000.
  • Specify the information required to enable the Commissioner of Financial Protection and Innovation to investigate applicants to determine whether they meet the standards for licensure.
  • Outline the process for challenging information entered in NMLS, as well as the grounds for which the Commissioner may deny an application.

According to DFPI’s notice, if adopted, the final rule would take effect on or about November 19, 2021 and permit debt collectors to apply for a license prior to January 1, 2022. Additionally, DFPI announced its intention to adopt additional regulations later in 2022 to specify the requirements for maintaining books and records and set forth the amounts required for a surety bond based on a licensee’s volume of debt collection activity.

Comments on the NPRM are due by June 8.