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SENATE BILL 908: Licensing for Debt Collectors
By Jeffrey A. French, Esq.
On September 25, 2020, Governor Newsom signed Senate Bill 908 into law, enacting the Debt Collection Licensing Act (“DCLA”). The adoption of the DCLA places California with the majority of states that already require consumer debt collectors to be licensed. Senate Bill 908 is a part of California’s recent triad of consumer financial services legislation, including AB 1864 (creates the Department of Financial Protection and Innovation and the California Financial Protection Law) and AB 376 (creates a new Student Loan Borrower Bill of Rights). All of these bills are intended to enhance consumer protection and provide greater regulation of the persons and entities engaged in debt collection.
The DCLA became effective on January 1, 2021, requiring the Commissioner of the Department of Business Oversight (soon to be the Department of Financial Protection and Innovation) to take all action necessary in order to be prepared to implement the licensing requirement effective January 1, 2022. In order to meet the licensing start date in 2022, the Commissioner will spend much of 2021 adopting regulations designed to implement the licensing program. In recognition of the fact that there may be a flood of applications in late 2021, any person or entity that submits an application before this date will be permitted to operate in 2022 pending the approval or denial of the application.
The DCLA will supplement existing law such as the Rosenthal Fair Debt Collection Practices Act (“Rosenthal Act”) that prohibits debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts. Rather than amend the Rosenthal Act to include a licensing obligation, the legislature decided instead to create a new standalone statute which will be codified in a new part of the state’s Financial Code. The two acts are designed to work in concert regulating consumer debt collection practices, and effort has been made to avoid joint prosecutions under each act.
The DCLA does not impose much in the way of substantive requirements recognizing the fact that the Rosenthal Act already serves that purpose. However, DCLA licensees must still obtain a surety bond, file an annual report, sign the license application under penalty of perjury, submit to a criminal background check and pay an annual fee, set by the Commissioner each year. The DCLA also requires licensees that send out digital or written communications with consumers to have their license number displayed in 12-point type on all such communications. The DCLA further authorizes the Commissioner to exercise oversight, field consumer complaints and issue orders and claims for relief in connection with a violation of the Rosenthal Act or the DCLA.
With regard to community associations in California, the DCLA should not materially impact their ability to collect assessments, but it may certainly increase costs associated with collection efforts as greater state regulation tends to drive costs upward for all concerned. However, the real impact will be on those that are doing the collections work for the associations. While there are a small number of potential exemptions to the application of the DCLA licensing requirement, both law firms and management companies do not appear to be exempted at this time. It is possible that the scope of the exemptions could increase as the DCLA is fully unpacked via the adoption of regulations. But, for now, it appears that both law firms and management companies that engage in collection activities come under its scope and will have to be licensed debt collectors subject to both the DCLA and Rosenthal Act. This will bring both law firms and management companies under greater scrutiny and require strict compliance with both the Rosenthal Act and DCLA to avoid possible claims under each act or, even worse, license suspension or forfeiture.
As of today, much remains to be seen as to how the DCLA will ultimately apply to community association debt collection and whether it will have a large or small impact on assessment collection. While the DCLA sets up a general framework for licensure, the detail will be in the regulations which have yet to be adopted. It also remains to be seen whether California will administer its own standalone licensing program or offer a debt collection license through the already existing Nationwide Multistate Licensing System. Regardless, SB 908 is somewhat of a game-changer and will require those engaged in the collection of assessments to pay close attention to its implementation via the regulations and then move quickly to comply with its licensing requirements. Any failure to comply will leave the law firm or management company unable to legally engage in collection activities in the state of California until such time as all licensing requirements have been met.
Jeffrey A. French, Esq. is an attorney specializing in community association law with Green Bryan & French, LLP. He’s worked in the industry for 25 years and services San Diego and Coachella Valley.
