Is Your Company Ready For The DCLA?
Is your debt collection company ready for the Debt Collection Licensing Act (“DCLA”)? (Cal. Fin. Code §§ 100000, et seq.) On January 1, 2022, the DCLA will take effect in California. The DCLA requires that in order to “engage in the business of debt collection” in California, that person and/or business must be licensed by the Department of Business Oversight. (Cal. Fin. Code § 100001.)
There are several exceptions to the licensing requirement, which include:
- Depository institutions (banks and credit unions). ( Fin. Code §§ 1420(a) & 100001(b).)
- Holders of lender licenses pursuant to California Financing Law. ( Fin. Code §§ 22000, et seq. & 100001(b).)
- Mortgage loan originators. ( Fin. Code §§ 50000, et seq. & 100001(b).)
- A real estate salesperson or broker. ( Bus. & Prof. Code § 10000, et. seq. & Cal. Fin. Code § 100001(b).)
- Persons and/or businesses who are subject to the Karnette Rental-Purchases Act ( Civ. Code § 1812.620, et seq. & Cal. Fin. Code § 100001(b).)
- A trustee performing acts in connection with a non-judicial foreclosure. ( Civ. Code § 2920, et seq. & Cal. Fin. Code § 100001(b).)
- Persons and/or businesses who are licensed to engage in student loan debt servicing. ( Fin. Code §§ 28102 & 100001(b).)
Once it has been determined that an exemption does not apply, the proposed licensee must apply for a debt collection license by submitting an application to the Commissioner of the Department of Business Oversight (the “Commissioner”); paying the required fee; submitting the initial debt collection letter the proposed licensee intends to use in its business; submitting fingerprints; and submitting to an investigation, including an investigation of controlling individuals, principal officers, directors, managing members, and 10% or more shareholders. (Cal. Fin. Code §§ 100007, 100008, & 100009.) An application for a license may be denied, after notice and opportunity for a hearing is given, for a number of reasons, including submitting a false statement of a material fact in the application; one or more of the investigated individuals has been convicted within the last 10 years of a crime (excluding traffic violations), committed any act involving dishonesty, fraud, or deceit, or is not in compliance with any other rules of the Commissioner, the California Financial Code, or similar rule(s) of a foreign jurisdiction; one or more of the investigated individuals has been held civilly liable related to debt buying practices per Cal. Civ. Code § 1788.50, et seq. within the last seven years; and upon the Commissioner’s conclusion, that the applicant is unfit for a license based on financial concerns, criminal records, experience, character, or general fitness. (Cal. Fin. Code § 100012.) The Commissioner has been granted the discretion in the DCLA to determine how the licensing requirements are to be submitted. It may be that the licensing requirements are conducted through a California system or a multistate licensing system and registry. (Cal. Fin. Code § 100006.3.)
Upon the issuance of a license, the Commissioner then has the authority to conduct further investigations and examinations of a licensee, including examination of the licensee’s records, criminal history, civil history, personal history, and any other information that the Commissioner deems relevant to the investigation. (Cal. Fin. Code § 100004.) A licensee also must ensure compliance with the DCLA, file any required report with the Commissioner, including the annual report, comply with all aspects of the DCLA, submit to period examination by the Commissioner, and maintain a surety bond in the minimum amount of $25,000. (Cal. Fin. Code §§ 100019 & 100021.) The annual report is a comprehensive report, under oath, on the finances of the licensee’s debt collection activities for the preceding year. (Cal. Fin. Code § 100021.) That annual report is available to the public once filed with the Commissioner. (Id.) The Commissioner has the power to revoke a previously issued license for various reasons, including violations of law, failure to cooperate with the Commissioner, and insolvency. (Cal. Fin. Code § 100003.3.) The license itself does not yet have an expiration date, but currently will only be interrupted upon suspension or revocation by the Commissioner. (Cal. Fin. Code § 100014.)
If a person or business engages in the business of debt collection without a license, that person or business, after notice and opportunity to be heard, may be ordered to cease further debt collection actions and pay relief. (Cal. Fin. Code § 100005(a).) That relief can include “refunds, restitution, disgorgement, and payment of damages.” (Id.)
The Department of Business Oversight is expected to open a licensing process and application form in summer or early fall of 2021. For more information from the Department of Business Oversight on licensing, click here.
