An Overview of California DFPI’s Debt Collection Oversight So Far

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Since the official creation of the California Department of Financial Protection and Innovation (DFPI) earlier this year, a number of issues have become key priorities for the agency. Among these, debt collection is one of the highest priority issues for the new department, which has worked to this end. Here, we highlight recent DFPI public statements focused on debt collection and documents related to legislation and regulations, COVID-19 protections and enforcement actions.

Legislation and regulations

Last year, California passed two laws establishing procedures for the licensing, regulation and supervision of debt collectors: the California Consumer Protection Law (CCFPL) and the Debt Collection Licensing Act (DCLA). The CCFPL came into effect on January 1, 2021. The DCLA Debt Collector‘s License Requirement and DFPI’s Auditor’s Enforcement Authority on Debt Collectors in California will only take effect when January 1, 2022.

Prior to the effective date of the DCLA, the DFPI filed a regulatory proposal to adopt application procedures and requirements for obtaining a debt collection license under the DCLA. The proposed settlement can be viewed here (comments are due by 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 of 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 deposits through the National Multistate 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 the current filing requirements. §1850.7.
  • Requires collection officers to appoint the DFPI Commissioner as the agent responsible for receiving service of any non-criminal judicial or administrative proceedings against the collector. § 1850.8.
  • Requires the applicant to hire a research firm to investigate certain individuals who control the business and 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 United States Department of Justice . §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 the premier financial regulator for consumer protection, as discussed during of our conversation with the DFPI Advocate General, Bret Ladine. (summary available here)

Another major DFPI debt collection initiative is the recent creation 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 implements its debt collection authorization program”.

Members include consumer advocates, debt buyers, third party collectors, and a debt collection law firm. The inaugural meeting of the committee will be held on July 28, 2021, with meetings expected 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 released a newsletter to debt collectors and another to mortgage lenders and real estate agents on protections for California tenants and landlords facing economic hardship from COVID-19.

The DFPI cited protections under the COVID-19 Tenant Relief Act (SB91). This builds on the state’s COVID-19 Rent Assistance Program, which is designed to provide financial assistance to tenants and landlords due to unpaid rents due to the pandemic. These protections include the prohibition 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 COVID rental debt. -19 before August 1, 2021.

We expect the DFPI to aggressively oversee and enforce debt collection limits 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 on unfair, false, misleading or deceptive statements, and the harassment or abusive conduct in the collection of rental debts).

Enforcement measures

Finally, the DFPI executing agency also asserted its authority over debt collectors. In January 2021, the agency announced investigations against a dozen companies with significant numbers of customers in the state issuing “… subpoenas [to] request documents that shed light on how businesses collect debts and communicate with consumers. “

In February 2021, the DFPI launched an investigation to determine whether several state student loan debt relief companies were engaging in illegal acts under the CCFPL and the Student Loan Servicing Act. At the same time, the agency took formal action against a private student loan debt relief company, citing allegedly false claims by the company that it could “reject” student loan debt. This was followed by a settlement in April 2021 with an online computer coding school over the company’s inclusion of allegedly misleading language in its contracts related to the release of debts as part of a debt filing. balance sheet.

Concluding 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 COVID-19-related collection moratoria. and other emergency measures. This trend can be expected to continue as the agency implements the Debt Collector License Program. We will continue to monitor developments in this space.


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