InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
DFPI adopts debt collector license application and requirements
On December 22, the California Department of Financial Protection and Innovation (DFPI) adopted regulations, beginning at section 1850, title 10 of the California Code of Regulations, under the Debt Collection Licensing Act. As previously covered by InfoBytes, in July, DFPI issued a notice of proposed rulemaking to incorporate changes to its debt collection licensing requirements and application. Among other things, the regulations set forth the: (i) application form and procedures for filing a license application through the Nationwide Multistate Licensing System & Registry (NMLS); (ii) requirements for a licensee to maintain information filed through the NMLS current; and (iii) procedures for surrendering a license as a debt collector.
DFPI acknowledges challenges in obtaining a NMLS account
On December 23, the California Department of Financial Protection and Innovation (DFPI) released a notice on its website regarding DFPI’s awareness of a “temporary slowdown in obtaining a new Nationwide Multistate Licensing System or NMLS account.” DFPI noted that it is “working cooperatively with the NMLS team to be able to verify those that have attempted to apply.” DFPI observed that “[w]ith various DFPI year-end deadlines, the NMLS team is experiencing an unprecedented volume of account requests.” DFPI further acknowledged the “predicament this puts entities in who are trying to comply with the new debt collector licensing requirement to apply for a license by Dec. 31, 2021,” and stated it “will not take any action against a debt collector solely on the basis of the temporary slowdown with NMLS.”
DFPI takes action against auto loan company
On December 14, the California Department of Financial Protection and Innovation (DFPI) issued a consent order with an auto title lender, resolving allegations that the company (respondent) violated the Fair Access to Credit Act’s prohibition on making loans of $2,500 to less than $10,000 with interest rates greater than 36 percent. According to the consent order, the respondent was an established auto title lender that entered into an agreement with a Utah state-chartered bank to provide the bank with marketing and servicing services in connection with auto title loans offered to California consumers (Bank Loan Program). The respondent and the bank began offering Bank Loan Program loans to California residents in January 2020. That same month, the Fair Access to Credit Act amended the California Financing Law to prohibit licensed lenders from making loans with principal amounts of $2,500 to less than $10,000 with interest rates greater than 36 percent, plus the Federal Funds Rate. The consent order noted that “some loans made to California borrowers under the Bank Loan Program had principal amounts of $2,500 to less than $10,000 and were at interest rates that exceeded 36% plus the Federal Funds Rate.” The Commission served a subpoena seeking documents and information related to the Bank Loan Program with respect to California borrowers. After DFPI initiated the investigation, the respondent ceased marketing Bank Loan Program loans of less than $10,000 to California borrowers.
Pursuant to the consent order, the respondent agreed to not market auto title loans of less than $10,000 with interest rates exceeding 36 percent plus the Federal Funds Rate in a program involving a state-chartered bank and to not service such loans until September 2023, unless there is an intervening change in the law or regulation that would otherwise permit it to do so.
OCC revises the Comptroller’s Licensing Manual
On December 10, the OCC announced an updated version of its “Background Investigations,” “Capital and Dividends,” “Charters,” “Conversions to Federal Charter,” and “National Bank Director Waivers” booklets of the Comptroller’s Licensing Manual. According to Bulletin 2021-60, the revised booklets: (i) replace booklets with the same titles issued between April 2017 and October 2019; (ii) reflect recent changes to 12 CFR 5 and other applicable regulations; (iii) eliminate references to outdated guidance and provide current references; and (iv) make other minor modifications and corrections.
DFPI extends NMLS transition for CFL licensees to March 15, 2022
On December 16, the California Department of Financial Protection and Innovation (DFPI) extended the deadline for California Financing Law (CFL) licensees to transition their licenses to the Nationwide Multistate Licensing System & Registry (NMLS) from December 31 to March 15, 2022. All licensees not yet on NMLS must establish an account in NMLS and submit their information on or before the new March deadline. Licensees may access state-specific checklists on the NMLS transition here in addition to DFPI FAQs for additional guidance. Find continuing InfoBytes coverage on the CFL here.
DFPI reminds debt collectors and buyers of December 31 application deadline
Recently, the California Department of Financial Protection and Innovation (DFPI) reminded debt buyers and debt collectors operating in the state of California that applications must be submitted on or before December 31, 2021 through the Nationwide Multistate Licensing System & Registry (NMLS). The Debt Collection Licensing Act, which takes effect January 1, 2022, requires all persons engaging in the business of debt collection to be licensed by DFPI. Debt collectors that have submitted applications may continue operating in the state while the applications are pending. However, debt collectors that miss the December 31 deadline will be required to wait for the issuance of a license before operating in the state. Application materials and a checklist of requirements are available on NMLS. DFPI noted it will review applications and issue licenses in 2022 and 2023, and stated that once a debt collector is licensed it will not need to register under the California Consumer Financial Protection Law.
DFPI issues proposed rulemaking under CCFPL
On November 17, the California Department of Financial Protection and Innovation (DFPI) issued an invitation for comments on proposed rulemaking under the California Consumer Financial Protection Law (CCFPL). The CCFPL provides DFPI with the authority to require companies that provide financial products and services to California consumers to register with the agency. DFPI is also able to “require registrants to generate and provide records to facilitate oversight of registrants and detect risks to California consumers.” The draft rule proposes requiring registration for industries that engage in the following financial products and services: debt settlement, student debt relief, education financing, and wage-based advances. According to DFPI’s notice, with respect to education financing, the proposed rulemaking covers providers of any form of credit where the credit’s purpose is to fund postsecondary education. It also covers “credit regardless of whether the provider labels the credit a loan, retail installment contract, or income share agreement, and regardless of whether the credit recipient’s payment obligation is absolute, contingent, or fixed.” Additionally, DFPI notes that “[w]ith respect to education financing with income-based payments, including contracts sometimes referred to as income share agreements,” DFPI proposes “reporting requirements that in some cases diverge from the reporting requirements for education financing with fixed payments.”
The proposed rulemaking provides definitions to implement the CCFPL registration regulations and addresses several registration provisions including the following:
- Provides that a person must not engage in the business of offering or providing the designated products and services without first registering with the commissioner unless exempt. The DFPI’s notice stipulates that registering with the commissioner “does not constitute a determination that other laws, including other licensing laws under the commissioner’s jurisdiction, do not apply” and the proposed rulemaking further provides that “granting registration to an applicant does not constitute a determination that the applicant’s acts, practices, or business model complies with any law or regulation.”
- Outlines registration requirements and designates NMLS to handle all applications, registrant filings, and fee payments on behalf of the commissioner. The proposed rulemaking lays out information that must be submitted and maintained as part of the registration application, as well as notices required by state law, and steps registrants must take when making changes to an application filing. An applicant’s failure to provide all or any part of the requested information may prevent approval, DFPI states.
- Outlines requirements for registrants seeking to conduct business at a new branch office or at a new location for an existing branch. Requests must be filed with NMLS within 30 calendar days of the date a registrant engages in business at the new branch office or new location.
- Addresses procedures related to annual assessments and pro rata payment requirements, as well as annual reporting requirements for registrants based on the products and services they provide.
- Outlines procedures and requirements for rescinding a summary revocation order when a former registrant submits a written request for reinstatement to the commissioner.
- Discusses procedures related to the effectiveness, surrender, and revocation of a registration. DFPI provides that a “registration issued under this subchapter is effective until it is revoked by the commissioner, is surrendered by the registrant, or becomes inoperative under subdivision (b) of Financial Code section 90009.5.”
DFPI’s notice also seeks comments on proposals to streamline the registration process and improve transparency and clarification on matters related to, among other things: (i) the types of information that may be subject to public disclosure; (ii) annual reporting requirements not included in the proposed rulemaking; and (iii) certain registration requirements that may be applicable to DFPI licensees and licensees and registrants of other state agencies. In addition, DFPI seeks stakeholder feedback on the economic impact of the draft rules on businesses and consumers in California.
Comments on the proposed rulemaking are due December 20.
DFPI proposes additional changes to definitions under Debt Collection Licensing Act
On November 15, the California Department of Financial Protection and Innovation (DFPI) issued a second draft of proposed regulations under the Debt Collection Licensing Act (the Act). As previously covered by InfoBytes, California enacted the Act in 2020 to require a person engaging in the business of debt collecting in the state, as defined by the Act, to be licensed. The Act also provides for the regulation and oversight of debt collectors by DFPI. In April 2021, DFPI issued a notice of proposed rulemaking (NPRM) and proposed regulations to adopt new requirements for debt collectors seeking to obtain a license to operate in the state, and issued a notice of modifications to the NPRM in June to incorporate changes to its debt collection license requirements and application. (Covered by InfoBytes here and here.) Among other things, the proposed modifications:
- Amend the definition of “branch office” to include any location other than an applicant’s or licensee’s principal place of business “if activity related to debt collection occurs at the location and the location is held out to the public as a business location or money is received at the location or held at the location.” The definition of “holding a location out to the public” includes receiving postal correspondence, meeting with the public, including the location on correspondence, letterhead, or business cards, and including signage at the location, or making any other representation that the location is a business location.
- Amend the definition of “debt collector” to align with the Act, which defines “debt collector” 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. The term includes any person who composes and sells, or offers to compose and sell, forms, letters and other collection media used or intended to be used for debt collection. The term ‘debt collector’ includes ‘debt buyer’ as defined in Section 1788.50 of the Civil Code.”
Comments on the second draft of modifications must be received by December 2.
Illinois AG, IDFPR settle with three payday lenders
On November 5, the Illinois attorney general and the Illinois Department of Financial and Professional Regulation (IDFPR) announced a settlement resolving allegations that three companies violated Illinois lending laws by generating payday loan leads without a license and arranging high-cost payday loans for out-of-state payday unlicensed lenders. The AG and IDFPR further alleged that the companies falsely represented their loan network as being “trustworthy,” although the loan terms and conditions did not comply with Illinois law, which violated the Illinois’ Consumer Fraud and Deceptive Business Practices Act. The AG sued the companies in 2014 after the companies refused to comply with a cease and desist order issued by IDFPR, which required them to become licensed. According to the announcement, under the terms of the settlement, the companies are prohibited from: (i) arranging or offering small-dollar loans, online or otherwise, without being licensed by IDFPR; (ii) advertising or offering any small consumer loan arrangements or lead generation services in Illinois, unless they are licensed by IDFPR; and (iii) providing services associated with arranging or offering small dollar loans to Illinois consumers without being licensed by IDFPR.
DFPI reminds CFL licensees of December 31 transition deadline
Recently, the California Department of Financial Protection and Innovation (DFPI) reminded companies licensed under the California Financing Law that they must transition onto the Nationwide Multistate Licensing System & Registry (NMLS) by December 31. Licensees not currently on the NMLS must establish an account in the system and transfer information to DFPI through NMLS on or before the deadline. Applicants and transitioning licensees are required to submit IRS and Secretary of State documentation identifying the employer identification number and the state where the company is registered as a business. DFPI further stated that the time for “DFPI to process the licensee’s NMLS transition does not [affect] the licensure status of the licensee, and may occur after the licensee’s December 31, 2021 deadline to submit the licensee’s information to the DFPI through NMLS.”