Since the California Department of Protection and Financial Innovation's (DFPI) formal establishment at the beginning of this year, a number of issues have come into focus as key agency priorities. Among these, debt collection is one of the highest priority issues for the new department—which has been busy to that end. Here, we highlight the DFPI's recent debt collection-focused public statements and materials related to legislation and rulemakings, COVID-19 protections, and enforcement actions.
Legislation and Rulemakings
Last year, California passed two pieces of legislation establishing procedures for the licensing, regulation, and oversight of debt collectors: the California Consumer Protection Law (CCFPL) and the Debt Collection Licensing Act (DCLA). The CCFPL went into effect on January 1, 2021. The DCLA's debt collector licensing obligation and the DFPI Commissioner's enforcement authority over debt collectors in California will not take effect until January 1, 2022.
Ahead of the DCLA's effective date, the DFPI filed a proposed rulemaking to adopt application procedures and requirements to obtain a debt collection license under the DCLA. The proposed regulations can be found here (comments are due by June 8, 2021). If adopted, the rule is expected to be effective 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 terms such as affiliate, debt buyer, and debt collector. §1850.
- Requires electronic license filings through the National Multistate Licensing System (NMLS). §1850.6.
- Provides additional licensing procedures and requirements such as the need for the pre-approval of fictitious business names, the need for a registered agent in California, identification and investigation requirements for direct and indirect owners, identification of affiliates of the applicant, samples of certain documents to be sent to consumers, and ongoing filing requirements. §1850.7.
- Requires debt collectors to appoint the DFPI Commissioner as an agent to receive service of process in any noncriminal judicial or administrative processing against the collector. § 1850.8.
- Requires the applicant to hire a search firm to investigate certain individuals who control the company and are not (or have not been) U.S. residents 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 U.S. Department of Justice. §1850.13.
- Coordination with the CFPB, for one, is something the DFPI plans to ramp-up as it works to establish itself as a premier consumer protection financial regulator, as discussed in our conversation with the DFPI's General Counsel, Bret Ladine. (summary available here)
Another major debt collection initiative of the DFPI is the recent formation of a debt collection advisory committee. On April 29, 2021, the DFPI announced the appointment of the committee's seven members, each of whom will serve a two-year term. The purpose of the committee is to "…provide critical feedback to the Department as it stands up its debt collection licensing program."
The members include consumer advocates, debt-buyers, third-party collectors, and a debt collection law firm. The committee's inaugural meeting is scheduled to be held on July 28, 2021, with meetings expected to be held biannually or on an as-needed basis.
The DFPI has also actively reminded the debt collection industry of COVID-19-related mortgage and rental protections available to California consumers. On April 9, 2021, the agency published a bulletin to debt collectors and another to mortgage lenders and servicers about protections afforded to California renters and homeowners experiencing COVID-19-related economic hardship.
The DFPI cited protections under the COVID-19 Tenant Relief Act (SB91). This builds upon the state's COVID-19 Rent Relief Program, which is designed to provide financial assistance to both renters and landlords stemming from unpaid rent due to the pandemic. These protections include prohibitions against selling or assigning COVID-19 rental debt before July 1, 2021, charging or collecting late fees for certain COVID-19 rental debt, or commencing actions to recover COVID-19 rental debt before August 1, 2021.
We expect the DFPI to aggressively supervise and enforce limitations on debt collection related to treatment of consumers subject to these protections. The DFPI bulletin also reminded debt collectors of consumer protections under the Fair Debt Collection Practices Act and the Consumer Financial Protection Act (specifically, the prohibition against unfair, false, deceptive, or misleading representations, and harassment or abusive conduct in rental debt collection).
Finally, the DFPI's enforcement arm has 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 illuminating how the companies collect debts and communicate with consumers."
In February 2021, the DFPI began investigations regarding whether several student loan debt-relief companies in the state were engaging in illegal conduct under CCFPL and the Student Loan Servicing Act. Concurrently, the agency issued a formal action against a private student loan debt relief company, citing purported false claims by the company that it could get student loan debt "dismissed." This was followed up by an April 2021 settlement with an online computer coding school over the company's inclusion of allegedly deceptive language in its contracts related to the discharge of debts in a bankruptcy filing.
The DFPI has clearly indicated 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 COVID-19-related collection moratoria and other emergency measures. This trend can be expected to continue as the agency implements the debt collector licensing program. We will continue to monitor developments in this space.
The facts, laws, and regulations regarding COVID-19 are developing rapidly. Since the date of publication, there may be new or additional information not referenced in this advisory. Please consult with your legal counsel for guidance.
DWT will continue to provide up-to-date insights and virtual events regarding COVID-19 concerns. Our most recent insights, as well as information about recorded and upcoming virtual events, are available at www.dwt.com/COVID-19.