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[co-author: Michael Buckalew]
Since the official creation of the California Department of Financial Protection and Innovation (DFPI) earlier this year, a number of issues have emerged as top priorities for the agency. Among these, Debt recovery is one of the highest priority issues for the new ministry – which has been very busy to this end. Here we highlight recent DFPI public statements focused on debt collection and documents related to legislation and rules, COVID-19 protections and enforcement actions.
Legislation and rules
Last year, California passed two laws establishing procedures for licensing, regulating, and overseeing debt collectors: the California Consumer Protection Act (CCFPL) and the Debt Collection License Act (DCLA). The CCFPL came into effect on January 1, 2021. The DCLA debt collection agent licensing requirement and the DFPI commissioner’s enforcement authority over California debt collectors will not take effect until January 1, 2022.
Before the effective date of the DCLA, the DFPI filed a proposed regulation adopt the application procedures and requirements for obtaining a debt collection license under the DCLA. The draft regulation can be found here (comments should be June 8, 2021). If passed, the rule is expected to come into effect on or around November 19, 2021.
The rule is to be added as Section 1850 under Subchapter 11.3 of Title 10 of the California Code of Regulations. The proposed rule:
- Defines such terms as affiliate, debt buyer, and debt collector. §1850.
- Requires electronic license filings through the National Multi-State Licensing System (NMLS). §1850.6.
- Provides additional licensing procedures and requirements such as the need for pre-approval of fictitious business names, the need for a California registered agent, identification and investigation requirements for direct and indirect owners, l ‘identification of the applicant’s affiliates, samples of certain documents to be sent to consumers and current filing requirements. §1850.7.
- Requires collection officers to appoint the DFPI Commissioner as an agent to receive process service in any non-criminal judicial or administrative treatment against the collector. § 1850.8.
- Requires the candidate to hire a research company to investigate certain people who control the company and who have not been (or have not been) residents of the United States for at least 10 years. §1850.10.
- Authorizes the Commissioner to share information that has been filed in the NMLS with any government agency, including the California Attorney General, the California Department of Justice, the Consumer Financial Protection Bureau (CFPB), and the Department of Justice of United States. §1850.13.
- Coordination with the CFPB, on the one hand, is something the DFPI plans to step up as it strives to establish itself as a leading financial regulator for consumer protection, as outlined in our conversation with DFPI Advocate General Bret Ladine. (summary available here)
Another major DFPI debt collection initiative is the recent formation of a debt collection advisory committee. On April 29, 2021, the DFPI announced the appointment of the seven committee members, each of whom will serve a two-year term. The committee’s goal is to “… provide critical feedback to the Department as it develops its debt collection licensing program.”
Members include consumer advocates, debt buyers, third party collectors and a debt collection law firm. the of the committee the inaugural meeting is expected to take place on July 28, 2021 meetings to be held every two years or as needed.
COVID-19 protections
The DFPI has also actively reminded the debt collection industry of the COVID-19 mortgage and rental protections available to California consumers. On April 9, 2021, the agency published a newsletter to debt collectors and another at mortgage lenders and managers on protections afforded to California tenants and landlords facing economic hardship from COVID-19.
The DFPI cited protections under the COVID-19 Tenant Relief Act (SB91). This is based on COVID-19 Rent Relief Program, which is designed to provide financial assistance to tenants and landlords due to unpaid rents due to the pandemic. These protections include prohibitions on selling or assigning COVID-19 rental debt before July 1, 2021, charging or collecting late fees for certain COVID-19 rental debts, or taking action to collect the debt. rental COVID-19 before August 1, 2021.
We expect the DFPI to aggressively oversee and enforce debt collection limitations related to the treatment of consumers subject to these protections. The DFPI bulletin also reminded debt collectors of the consumer protections under the Fair Debt Collection Practices Act and the Consumer Financial Protection Act (in particular, the prohibition of unjust, false, misleading or misleading representations, and harassment or abusive conduct in the collection of rental debts).
Enforcement actions
Finally, the DFPI executing agency also asserted its authority over debt collectors. In January 2021, the agency announced surveys against ten companies with a significant number of clients in the issuing State “… subpoenas [to] ask for documents explaining how businesses collect debts and communicate with consumers. “
In February 2021, the DFPI opened investigations into whether several state student debt relief companies were engaging in illegal behavior under the CCFPL and the Student Loan Service Act. At the same time, the agency launched a formal action against a private student debt relief company, citing alleged false allegations by the company she could get the “rejection” of her student loan debt. This was followed by an April 2021 regulation with an online computer coding school about the company’s inclusion of allegedly misleading language in its contracts related to releasing debts into a bankruptcy filing.
Final thoughts
The DFPI has made it clear that debt collection is and will continue to be a key regulatory and enforcement priority, particularly given the imminent end of a number of state and federal debt collection moratoria related to the COVID-19 and other emergency measures. This trend can be expected to continue as the agency implements the collection agent licensing program. We will continue to monitor developments in this space.
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