Debt Collection – Licensee
Conditional Licensing – Per the passage of AB 156 as of January 1, 2023, DFPI will begin approving Conditional Licenses for Debt Collectors. See Question 21 for more information on conditional licenses. Additionally, the bill requires the commissioner to allow any debt collector that submits an application before January 1, 2023, to operate pending the approval or denial of the application.
Laws Impacting Debt Collectors
The Department of Financial Protection and Innovation (DFPI) provides licensure, regulation, and oversight of California debt collection practices under the California Consumer Financial Protection Law and the Debt Collection Licensing Act. Both measures help to better protect consumers and create a level playing field for industry. The consumer protection law took effect on Jan. 1, 2021, and the debt collector law takes effect on Jan. 1, 2022.
The DFPI began accepting applications for licensure on Sept. 1, 2021. You can reach the licensing team by emailing DCLA.Inquiries@dfpi.ca.gov. We can answer questions regarding the licensing process but cannot provide legal advice.
Applications must be submitted via the Nationwide Multistate Licensing System & Registry (NMLS). A checklist of requirements for the application is also available on NMLS.
The Department expects to review applications and issue licenses in 2022 and 2023. Once licensed, debt collectors will not need to register under the California Consumer Financial Protection Law.
How To Reach Us
Department of Financial Protection and Innovation
Attn: Debt Collection Licensing Act
2101 Arena Boulevard
Sacramento, CA 95834
Phone: (916) 327-7585
Debt Collector Licensee Voicemail: (916) 576-8623
Frequently Asked Questions – Debt Collector Licensing Act (DCLA)
All application requirements described in the frequently asked questions below are subject to completion of the proposed rulemaking under the Administrative Procedure Act. For information and updates regarding such rulemaking see Laws and Regulations – Debt Collection Licensing Act.
1. Why are debt collectors operating in California now required to get a license?
In 2020, the California legislature passed SB 908, the Debt Collection Licensing Act (DCLA), which provides for the licensure, regulation, and oversight of California debt collectors by the Department of Financial Protection and Innovation.
The new debt collection law becomes effective January 1, 2022. Under the new law a person engage in the business of debt collection must apply for a license to continue to operate in California pending the denial or approval of their application.
2. Can I continue doing business in California while my application is pending approval or denial?
Yes. The department will allow any debt collector that submits an application before January 1, 2023, to operate pending the approval or denial of the application.
3. What business operations constitute a ‘debt collector’ and who is required to apply for a license?
A “debt collector” is “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.’” Affiliates who engage in the business of debt collection are required to apply for a license.
“Debt collection” means any act or practice in connection with the collection of consumer debt. A “debt buyer” means a person or entity that is regularly engaged in the business of purchasing charged-off consumer debt for collection purposes, whether it collects the debt itself, hires a third party for collection or hires an attorney-at-law for collection litigation. “Debt buyer” does not mean a person or entity that acquires a charged-off consumer debt incidental to the purchase of a portfolio predominantly consisting of consumer debt that has not been charged off. “Charged-off consumer debt” means a consumer debt that has been removed from a creditor’s books as an asset and treated as a loss or expense.
4. Where can I find the application?
The application is available electronically on the Nationwide Multistate Licensing System and Registry (NMLS) website at: https://nationwidelicensingsystem.org/.
5. Can I receive an alert or notice when the DFPI updates the Debt Collector Licensing Program or proposed regulation changes?
To receive email updates, alerts, and important notices from the DFPI about licensing you may subscribe to the DFPI’s email subscription service.
6. Where can I find information about new rulemaking by the DFPI?
You may find updates regarding proposed regulations and new rulemaking related to debt collectors at Laws and Regulations – Debt Collection Licensing Act. To avoid missing an important update, we strongly encourage individuals to check the DFPI’s website periodically and subscribe to the DFPI’s email subscription service.
7. When will I get my license number?
The license number will be sent when the application is approved. For purposes of including California debt collector license numbers when contacting or communicating with debtors as required under Civil Code section 1788.11, an applicant who has filed its application through NMLS may indicate “license number pending” or similar verbiage until a license is issued.
8. Who needs to submit an application?
All debt collectors and debt buyers operating in California are required to apply for a license with the Department. A license is required for the licensee’s principal place of business and cannot be transferred or assigned. Please note that a separate license is not required for each individual branch office. However, your branch offices must be registered in the NMLS.
9. Are there any exemptions to licensing?
There are exemptions for depository institutions such as FDIC-insured banks, credit unions, DFPI-licensed finance lenders and brokers, DFPI-licensed mortgage lenders and servicers, Department of Real Estate licensed agents, persons subject to the Karnette Rental-Purchase Act, a trustee for a nonjudicial foreclosure, and debt collections regulated under the Student Loan Servicing Act.
For a list of exemptions please refer to Fin. Code § 100001(b)(1) and (c) . For a list of actions that may be taken against a person for violations of Civil Code sections 1788 et seq. or 1788.50 et seq. regardless of licensure please refer to Fin. Code § 100005. For more definitions, including “debt collector,” “consumer debt,” “debt,” and others, please refer to Fin. Code § 100002.
10. Has any person/activity been determined to not be in the business of debt collection?
The Department has determined that routine HOA assessments do not constitute a “consumer credit transaction” as defined under the DCLA, and therefore do not constitute “consumer debt” under the Act. Since the collection of routine HOA assessments is not considered to be collection of “consumer debt,” such activity would not constitute being engaged in the business of debt collection and does not require licensure under the DCLA.
11. Does the application cost anything? If so, how much?
There is an application fee of $350 and an investigation fee of $150 per applicant. Fees will need to be paid through the Nationwide Multistate Licensing System and Registry (NMLS) for transmission to the Commissioner. The NMLS fees for obtaining credit reports, annual processing fees, and any other NMLS fees shall be paid by applicants and licensees to NMLS through NMLS. Fees are not refundable.
You may apply for a single license that includes all your affiliates engaged in the business of debt collection and pay a single application fee of $350. However, each affiliate will still need to pay the investigation fee of $150 and complete a New Company application (Form MU1).
The application fee of $350 is invoiced through NMLS after the application is submitted.
12. Where do I find the instructions for filling out the application?
There is a checklist on the NMLS website with the instructions to file an application.
13. What is the fingerprinting process?
Once an application is filed, detailed fingerprinting instructions for individuals in and outside of California will be provided to the Primary Company Contact. Due to the volume of applications expected to be filed you can anticipate an extended period of time before you receive the instruction email. The fingerprinting process is considered part of the review process for the application. It is not part of the initial submission requirement and is NOT due with the NMLS submission of the application.
14. Where may I find a template to gather the data I am going to enter into the screens online?
To view samples of the Form MU1, Form MU2, and Form MU3 provided on NMLS please visit Laws and Regulations – Debt Collection Licensing Act.
15. Can I submit the application in paper form?
No. The Commissioner requires applicants to file electronically through the Nationwide Multistate Licensing System & Registry (NMLS). In addition, the Commissioner may require fees, supporting documents, changes of address, and any other information, and amendments or modifications thereto, to be submitted by applicants and licensees through NMLS.
The Commissioner has designated NMLS to receive and store filings, obtain credit reports, and collect related fees and assessments from applicants and licensees on behalf of the Commissioner. All applications, amendments, surety bonds, notices, related filings, supporting documents, renewals, authorizations, assessments, and fees required to be filed with the Commissioner will need to be filed electronically with and transmitted to NMLS.
16. How long is the application review process?
Per legislation, all debt collectors need to apply for a license to continue to operate in California. That means we will have a large volume of applications to review. The licensing team is diligently working to review them as quickly as possible; however, the process is anticipated to take place through 2023. Do not be concerned if you do not get a response from us regarding your application for an extended period of time.
17. When does the status of my application change in NMLS?
All applications default to “Pending-Incomplete” when submitted. Your application will stay in this status until it has been assigned and is being reviewed by the licensing team. At that time the status will change to “Pending-Review”. Due to the volume of applications expected to be filed you can anticipate an extended period of time before the status of your application changes. Once the application is approved the status will change to “Approved – Conditional”.
18. I just received approval of a license, now what?
In general, a licensee’s duties can be found in Fin. Code §§ 100018 – 100023 of the Debt Collection Licensing Act (Fin. Code § 100000 et seq.) (DCLA). For information regarding pending regulations please visit: Laws and Regulations – Debt Collection Licensing Act. You are responsible for complying with the law, including but not limited to the California Consumer Financial Protection Law (Fin. Code § 90000 et seq.) (CCFPL) and the DCLA.
19. What could cause a debt collector to lose its license?
The Commissioner may suspend or revoke a license if the licensee does any of the following: violates the DCLA, the Rosenthal Fair Debt Collections Practices Act, or Civ. Code § 1788.50 et seq. The Commissioner can also suspend or revoke a license for other reasons.
The Commissioner may suspend or revoke the license of a debt collector if it does not cooperate with an examination or investigation; is insolvent, suspends payment of its obligations, or makes a general assignment for the benefit of its creditors, a receiver, liquidator, or if a conservator has been appointed for a licensee; or any fact or condition exists that, if it had existed at the time that the licensee applied for a license, would have been grounds for denying the application.
20. What else could happen if a debt collector violates the law?
The Commissioner may issue a desist and refrain order to keep a company or individual from engaging in the business as a debt collector without a license or from violating the DCLA or the Rosenthal Fair Debt Collections Practices Act or Civ. Code § 1788.50 et seq. The Commissioner may also order the person or licensee to pay ancillary relief, including but not limited to refunds, restitution, disgorgement, and payment of damages on behalf of a person injured by the conduct or practices constituting the violation.
Under the CCFPL, it is unlawful for a covered person or service provider, which includes debt collectors and debt buyers, to engage in any unlawful, unfair, deceptive, or abusive act or practice with respect to consumer financial products or services, offer or provide to a consumer any financial product or service not in conformity with any consumer financial law or otherwise commit any act or omission in violation of a consumer financial law, or fail or refuse, as required by a consumer financial law or any rule or order issued by the Department, to do any of the following: (A) permit the Department access to or copying of records; (B) establish or maintain records; or (C) make reports or provide information to the Department.
A covered person or service provider shall not terminate or in any other way discriminate against any or any authorized representative of covered employees by reason of the fact that they (1) filed a proceeding under any consumer financial law or (2) objected to or refused to participate in any activity, policy, or practice they believed to be in violation of any law, rule, or order.
If a person violates the CCFPL, rule, or final order or condition imposed in writing by the Department, the Commissioner may bring a civil action in superior court for a preliminary or permanent injunction, restraining order, writ of mandate, or order appointing a receiver.
If a person engages, has engaged, or proposes to engage in any activity prohibited by Financial Code sections 90003 or 90004, or an activity that violates a law, rule, order, or any condition imposed in writing by the Department, the Department may issue a desist and refrain order including a claim for ancillary relief as set forth in Financial Code section 90012(b).
21. What is a Conditional License?
A Conditional License is an approved license that is based on the condition that federal criminal history records checks will be performed at a later date. Applicants will receive notification through NMLS when MU2 filers will need to complete the fingerprinting process. They will have 90 days to complete the process. Conditional Licenses expire:
(A) Ninety days after the requirements of Financial Code Sections 100007, 100008, and 100009 have been satisfied.
(B) Upon the issuance of an unconditional license.
(C) Ninety days after the commissioner directs the licensee in writing to submit fingerprints for submission to the Department of Justice pursuant to Section 100008, if the licensee fails to submit a set of fingerprints for each individual described in Section 100009.
(D) Upon the denial, pursuant to Section 100012, of a license application.
Laws and Regulations
- Assembly Bill 1864 (Limón, Chap 157, Stats. 2020) – California Consumer Financial Protection Law
- Senate Bill 908 (Wieckowski, Chap 163. Stats. 2021) – Debt Collection Licensing Act. More information on proposed regulations.
The Debt Collection Licensing Act also requires debt collectors to submit to examination, file reports under oath, maintain surety bonds, submit to criminal background checks and pay pro rata shares of all costs and expenses reasonably incurred by the DFPI to license and regulate the industry.
The first rulemaking packages to implement the new law became effective on December 22, 2021. Stakeholders can find a copy of the regulations here.
An additional rule-making package is underway concerning annual reports, bond requirements and other regulations. More rulemaking packages will follow in subsequent years.
Additional details about these requirements will be provided here as they become available. Questions should be sent to Ask.DFPI@DFPI.ca.gov. To receive notices of DFPI rulemaking, subscribe to our e-mail subscription service.