Among the suite of consumer protection bills signed into law last month by California Governor Gavin Newsom is AB 2524. The bill, as enacted, is a less-expansive version of an assembly bill that would have created an entirely new and broad system of regulation over debt settlement companies through amendments to the Check Sellers, Bill Payers and Proraters Law. Despite the apparent specificity in the title, the Proraters Law applies broadly to any individual or corporation engaged or planning to engage in the business of selling checks, drafts or money orders, or of receiving money as agent of an obligor for the purpose of paying bills, invoices or accounts of such obligor. While the bulk of the proposed amendments were abandoned, AB 2524, in its final form, has the effect of expanding the reach of California’s Proraters Law, including its licensure requirement, to non-California domiciled debt settlement providers. As we’ve previously noted, entities licensed under the Proraters Law are exempt from the new California Consumer Financial Protection Law, including the bulk of its UDAAP provisions.
As originally introduced, AB 2524 would have (1) limited charges for debt settlement services; (2) limited monthly payment amounts; (3) introduced enforcement mechanisms – most notably by creating a private right of action; (4) added mandatory disclosure and reporting requirements; and (5) made changes to California’s licensing law to include debt settlement companies not domiciled in California. Only the bill’s provision regarding licensing requirements survived passage into law.
The Proraters Law (enacted in 1951) required licensees to be organized under California law, and thereby limited Department of Business Oversight’s (now DFPI) regulatory authority to the handful of companies incorporated in California. As a result, the Department had no authority over the dozens of other debt settlement companies that conducted business within the state but who were domiciled elsewhere. By removing the California domicile requirement, AB 2524 effectively requires all debt settlement companies doing business in California be licensed by the DFPI, and makes non-California domiciled debt settlement services subject to the requirements of the Proraters Law.
The impact of AB 2524 has yet to be seen, but it undoubtedly increases the regulatory requirements associated with providing debt settlement services to California consumers. The regulatory requirements under the Proraters Law generally include paying a licensing fee, providing background checks on certain personnel, obtaining a bond, providing audited financial statements, restrictions on advertising methods, and restrictions on prorater origination fees. We will continue to track these developments as they occur.