Debt Collectors: Frequently Asked Questions
All application requirements described in these FAQs 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.
Q: Why are debt collectors operating in California now required to get a license?
A: In 2020, the California legislature passed AB 1864, the California Consumer Financial Protection Law (CCFPL) and 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.
Under the DCLA, a person engaged in the business of debt collection in California must be licensed starting from Jan. 1, 2022. If you submit an application by Dec. 31, 2021, you may continue to operate in California pending the denial or approval of your application.
Q: Can I continue to operate in California if I don’t submit an application by Dec. 31, 2021?
A: No. If you fail to submit an application by Dec. 31, 2021, you will be precluded from continuing to operate in California until you are issued a license. Moreover, the DFPI can take legal action against persons that continue operating without having submitted an application.
Q: What business operations constitute a ‘debt collector’ and who is required to apply for a license?
A: 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.
Q: Where can I find the application?
A: The application will be available electronically on the Nationwide Multistate Licensing System and Registry (NMLS) website at: https://nationwidelicensingsystem.org/.
Q: When will the application be ready to begin filling out?
A: The application will be available on the NMLS website on Sept. 1, 2021.
Q: Can I receive an alert or notice when the application is available?
A: To receive email updates, alerts, and important notices from the DFPI about licensing you may subscribe to the DFPI’s email subscription service. Anyone interested in submitting an application is strongly encouraged to subscribe to the DFPI’s email subscription service and provide a dedicated email address where you are sure to receive such notices.
Q: Where can I find information about new rulemaking by the DFPI?
A: 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.
Q: Can I continue doing business in California while my application is pending approval or denial?
A: Yes. According to the Debt Collection Licensing Act, any debt collector that submits an application prior to Jan. 1, 2022, can continue to operate pending the approval or denial of the application.
Q: Who needs to submit an application?
A: 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.
Q: Are there any exemptions to licensing?
A: 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 (b)(2). 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.
Q: Who must be included in the licensing application?
A: Affiliates of the applicant who engage in the business of debt collection or other financial services or settlement services are required to be identified in the license application. However, only affiliates engaged in the business of debt collection are required to apply for a license. For additional information you may refer to Laws and Regulations – Debt Collection Licensing Act.
Q: Does the application cost anything? If so, how much?
A: The Department intends to set the application fee at $350 and the investigation fee at $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, which the Department intends to set at $350. However, each affiliate will still need to pay the investigation fee, which the Department intends to set at $150, and complete a New Company application (Form MU1).
Q: Where do I find the instructions for filling out the application?
A: NMLS: The NMLS portion of the application will include three sections: Form MU1 (NMLS Company Form), Form MU2 (NMLS Individual Form), and Form MU3 (NMLS Branch Form). Samples of the proposed Forms MU1, MU2, and MU3 can be viewed for instructional purposes at Laws and Regulations – Debt Collection Licensing Act. The NMLS application will need to be signed under penalty of perjury. The Department intends to set the application fee at $350 and an investigation fee at $150, both of which will be nonrefundable. You will also need to submit a sample of the initial letter required pursuant to 15 U.S.C. § 1692g of the FDCPA as well as a sample of the notice required pursuant to Civ. Code § 1788.52(d) that you will use in corresponding with California consumers. (Fin. Code § 100007).
Live Scan Service through CA DOJ and Request for Live Scan Form to NMLS: This portion of the application will require individuals who submit a Form MU2 to submit fingerprints and pay all fingerprint fees through the CA Department of Justice’s electronic fingerprint submission Live Scan Service. Information regarding background checks for individuals who are not residents of the United States are currently pending.
Q: Where may I find a template to gather the data I am going to enter into the screens online?
A: To view samples of the Form MU1, Form MU2, and Form MU3 provided on NMLS please visit Laws and Regulations – Debt Collection Licensing Act.
Q: Can I submit the application in paper form?
A: No. The Commissioner will require applicants to file electronically through the Nationwide Multistate Licensing System & Registry (NMLS). In addition, the Commissioner may require fees, fingerprints, 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 intends to designate NMLS to receive and store filings, obtain credit reports, and collect related fees and assessment 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.
Q: I just received approval of a license, now what?
A: 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.
Q: What could cause a debt collector to lose its license?
A: 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.
Q: What else could happen if a debt collector violates the law?
A: 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 or 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 covered employee 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).
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