Department of Financial Protection and Innovation to License Debt Collectors and Buyers

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By Stephanie Mendivil

SB 908 (Wieckowski), as amended August 24, 2020, amends sections 1788.11 and 1788.52 of the Civil Code, and adds Division 25 to the Financial Code, titled “Debt Collection Licensing Act,” relating to debt collectors. Specifically, the bill requires debt collectors and buyers operating in California to be licensed by the Department of Financial Protection and Innovation (DFPI). The bill also requires debt collection attorneys to be licensed by DFPI and authorizes the Department to take borrowers’ complaints and enforce violations. The bill will give consumers a single location to check whether such companies are licensed and whether they have been subject to any enforcement actions, including license suspensions or revocations. Funding will come from licensing fees on the industry.

According to its author, the bill will ensure “greater consumer protection through enhanced oversight over debt collectors and debt buyers operating in the state.” In addressing the necessity of this bill, the author cited the fact that California has been in the minority of states that did not license debt collectors.

The author also noted that despite federal and state Fair Debt Collection Practices Acts, collection practices consistently remain a top consumer complaint. Current enforcement of the state’s debt collection laws relies on either a consumer suing a collection company or the California Attorney General (AG) accepting a consumer complaint about debt collection and debt buying practices.  However, the AG generally only pursues major violations of the law, rather than engaging in every complaint filed.

With minor exceptions, SB 908 does not add any new requirements on debt collectors and debt buyers; it instead adds a layer of regulatory oversight over debt collectors and debt buyers who are already subject to state law, but previously not subject to licensure.  The bill’s author suggests that in layering this licensing and examination framework over existing state law requirements, California will be better able to ensure that debt collectors and debt buyers comply with existing state law.

AB 1864 (Limón) (Chapter 157, Statutes of 2020), signed by Governor Newsom on September 25, 2020, renamed the Department of Business Oversight (DBO) to the Department of Financial Protection and Innovation (DFPI). AB 1864 gives DFPI authority over previously-existing DBO licensees and new oversight authority over entities which were not previously required to be licensed in California but which offer or provide financial products or services in California, deemed “new covered persons.” Under SB 908, debt collectors now make up 7,000 of the 9,000 new covered persons the DFPI has authority over.

Governor Newsom signed SB 908 (Chapter 163, Statutes of 2020) on September 25, 2020. The Debt Collection Licensing Act becomes effective on January 1, 2022.

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