As discussed in an earlier blog post, the California Department of Financial Protection and Innovation (“DFPI”) issued an Invitation for Comments on the Proposed Second Rulemaking under the Debt Collection Licensing Act (“DCLA”) on August 19, 2021. The Commissioner is now considering draft regulations related to the DCLA’s scope, annual report, and document retention requirements, and has issued an “Invitation for Comments on Draft Text for Proposed Second Rulemaking Under the Debt Collection Licensing Act.”
The draft text amends:
- 10 CCR § 1850 to include a definition of the term “engage in the business of debt collection.” This proposed definition clarifies that “[a] person engages in the business of debt collection and is required to be licensed pursuant to section 100001, subdivision (a) of the Financial Code if the person (A) engages in debt collection for a profit or gain, and (B) the activity is not of a regular, frequent, or continuous nature. Advertising or otherwise offering the service of debt collection for remuneration constitutes engaging in the business of debt collection.”
- 10 CCR § 1850.1 to make clear that the scope of the licensing requirement:
- EXCLUDES employees of debt collectors, when acting within the scope of their employment with a licensed debt collector. The term “employee” is defined in amended 10 CCR § 1850 to mean “an individual whose manner and means of performance of work are subject to the right of control of, or are controlled by, a person and whose compensation for federal income tax purposes is reported, or required to be reported, on a W-2 form of international equivalent, issued by the controlling person.
- INCLUDES parent entities, subsidiaries, and affiliates of licensed debt collectors, to the extent they are not otherwise exempted under the DCLA.
- EXCLUDES an “original creditor” (i.e., a creditor seeking, in its own name, repayment of consumer debt arising from credit the creditor extended), unless it meets one or more of the following criteria:
- Five percent or more of the creditor’s annual profits over the last 12 months, whether contracted for or received, constitute collection fees, late fees, or any other charges added to the original consumer credit transaction that created the debt;
- Within the last 12 months, an average of ten percent or more of the creditor’s inventory was repossessed at least once, either by the creditor directly or through a third-party; or
- The creditor has a monthly average over the last 12 months of twenty-five percent or more of the gross amount of its accounts receivables ninety or more days past due.
- EXCLUDES a person solely servicing debts not in default on behalf of an “original creditor. “Default” means more than 90 days past due, unless the contract governing the transaction or another law provides otherwise.
- EXCLUDES a healthcare provider, healthcare facility, or hospital if the only debt it collects is on its own behalf and is payment for medical or other services or products it provided.
- EXCLUDES a local, state, or federal government body of the US when collecting debt owed to a government body. The term “government body” includes a state, county, city, tribal, district, public authority, public agency, judicial branch public entity, state-chartered public college or university, and any office, officer, department, division, bureau, board, or commission thereof.
- EXCLUDES a person whose debt collection activity is limited exclusively to debt collection regulated pursuant to the California Student Loan Servicing Act (Cal. Fin. Code §§ 28100 et seq.).
- EXCLUDES a public utility when acting under the supervision of the California Public Utilities Commission in accordance with its authority under applicable California laws and regulations.
- 10 CCR § 1850.2 to clarify the following points about “consumer credit transactions” and “consumer debt”:
- Residential rental debt does not constitute “consumer debt” for the purposes of the DCLA. While the draft text did not initially exclude a debt owed to a Homeowners’ Association, it was subsequently revised to provide that a debt owed pursuant to a Homeowners’ Association Declaration of Covenants, Conditions, and Restrictions or other equivalent written agreement also does not constitute a “consumer debt.”
- Debt arising from a consumer’s acquisition of healthcare or medical services, where payment is deferred, is presumed to be “consumer debt.”
- The failure of a personal check to clear does not create a consumer credit transaction under the DCLA.
- 10 CCR § 1850.70 to enumerate the exact information that must be included in each licensee’s annual report, which must be filed with the DFPI on or before March 15 of each year pursuant to Cal. Fin. Code § 100021.
- 10 CCR § 1850.71 to detail the document retention requirements that each licensee must adhere to when engaging in the business of debt collection.
Interested parties are invited to submit comments, including comments describing the potential financial impact of the draft regulations by Monday, August 29, 2022. The DFPI asked that questions regarding the Invitation for Comments be directed to Emily Gallagher, Senior Counsel, at email@example.com.