Debt collection practices and abuses in California are covered under AB 1864, the California Consumer Financial Protection Law (CCFPL), and SB 908, the Debt Collection Licensing Act, which provides for the licensure, regulation, and oversight of California debt collectors by the Department of Financial Protection and Innovation.
Both measures passed and were signed into law in 2020. The CCFPL took effect on Jan. 1, 2021, but SB 908 does not take effect until Jan. 1, 2022.
Debt collectors are persons who regularly engage in the business of debt collection on the person’s own behalf or on behalf of others. To collect a debt, they can call and email consumers, but they are restricted under the CCFPL from engaging in unfair, unlawful, deceptive, or abusive acts or practices. You can file a complaint against a debt collector at https://dfpi.ca.gov/file-a-complaint/. Questions should be sent to Ask.DFPI@DFPI.ca.gov or you can call 1-866-275-2677.
What to Look Out For:
- Debt collectors are not allowed to threaten you with arrest, violence, or harm. They are not allowed to threaten to call or harass your employer or your family members, misrepresent the amount you owe, use obscene or profane language, or to call repeatedly to annoy you. If debt collectors engage in these practices, their actions might be illegal.
- Check your credit report for negative reports you were not aware of or debts that may have been reported in error (for example, debts you don’t recognize or believe you have paid off). If you believe there is an error, you may dispute the negative report. For more information, see https://www.consumer.ftc.gov/articles/0151-disputing-errors-credit-reports.
- Beware of any debt collector who tries to make you affirm or acknowledge debt that you don’t recognize, that is really old, or that you believe was discharged in bankruptcy. Before you make any affirmation you may want to check your rights by contacting an attorney or the Department.
- If you get phone calls from a debt collector, keep a record of the calls, including the name of the debt collector, creditor, and the amount of the purported debt. Record each of the times they call you and what they say. Note whether they recorded your phone call. Don’t be afraid to ask questions: what’s their name and address, who are they collecting for, how much do they claim you owe, when was the debt incurred, etc. A detailed record of how often the debt collector has been contacting you and what the debt collectors say to you may help protect you from unfair, unlawful, deceptive or abusive behavior if you need to complain to the Department about their behavior.
- A debt collector may try to negotiate with you and offer a payment plan. Before you share personal or financial information or take their offer, ask for written documentation of the alleged debt to make sure the debt is yours, the amount is accurate, and that it was not previously paid or discharged in bankruptcy. Ask for the name of the original creditor and the name of the debt collector, its address and telephone number so that you can do your own due diligence before agreeing to a payment plan.
- Before you make or agree to make a payment on an old debt, you can check your rights online at https://www.consumer.ftc.gov/articles/debt-collection-faqs or call the Department. Otherwise, you may unintentionally open yourself up to additional collection attempts.
- If a debt collector threatens to sue you or says they have sued you, find out if they did. If so, you may need to act quickly by contacting a lawyer.
- Be on the alert for any debt buyer who calls you but does not provide you with anything in writing or anywhere to send a written request for a contract or other documents showing that you agreed to the debt. If a debt buyer attempts to collect a debt in writing, you are entitled to receive documentation from them validating the alleged debt.
- If a debt buyer obtained a default judgment against you but you did not receive notice of the lawsuit until after the default judgment was entered, you may still be able to get the default judgment set aside and defend yourself in the lawsuit. But you have a limited amount of time to act. You may have to act quickly by contacting a lawyer or the Department.
For Debt Collectors:
Debt collectors are among the new financial service providers covered starting Jan. 1, 2021 under the CCFPL.
In addition, SB 908 – the Debt Collection Licensing Act – requires debt collectors and buyers to apply for a DFPI license by Dec. 31, 2021. Debt collectors and buyers who apply for a license after that date will be required to wait for the issuance of a license before they can operate in California. The DFPI will be accepting applications starting September 1, 2021. Any change to that target timeline will be announced here. You can reach the licensing team by emailing DCLA.Inquiries@dfpi.ca.gov.
Applications must be submitted via the Nationwide Multistate Licensing System & Registry (NMLS). A checklist of requirements for the application is now available on NMLS (as of Aug. 25).
The Department expects to review applications and issue licenses in 2022 and 2023. Once licensed, debt collectors will not need to register under the CCFPL.
Laws and 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 Department plans to prepare multiple rulemaking packages to implement the new law. The Department is in the process of drafting regulations related to the license application process. On April 23, the Department published proposed regulations regarding the licensing process for debt collectors for public comment. Stakeholders can find a copy of the proposed regulations here. The deadline for comments on the modified text is July 12, 2021.
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.
Debt Collection Advisory Committee
On April 29, 2021, the Department announced the formal creation of its inaugural debt collection advisory committee, a seven-member board that will provide critical feedback to the Department as it stands up its debt collection licensing program. The diverse group includes a consumer advocate and representatives from the debt collection, debt-buying, third-party collection, and collection law industries. The committee will advise the Commissioner on matters related to the debt collection business, including proposed fee schedules and other requirements.
Visit Debt Collection Advisory Committee page for more information.
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