Confusion reigns over the scope of the Debt Collection Authorization Act – Finance and Banking
United States: Confusion reigns over the scope of the Debt Collection Licensing Act
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California’s new Debt Collection Licensing Act, Cal. Fin. Code § 100000 et seq., entered into force on January 1, 2022. However, the incompetent and inconsistent drafting of the legislature has resulted in great uncertainty as to who exactly should be authorized.
Article 100001 (a) provides that “no one shall engage in the business of Debt recovery in this state without first obtaining a license. . . “. Section 100005 authorizes the Financial Protection and Innovation Commissioner to take specified enforcement action if, in his or her opinion,” a person to be licensed under this division carries out a commercial activity as a debt collector without license. . . ”. Note that these two laws use different terms -“ debt collection ”and“ debt collector. ”Both are defined in the DCLA but the definitions are not consistent. Section 10000 (2) (i) defines “debt collection” as “any act or practice in connection with the collection of consumer debts” while Article 100002 (j) defines “debt collector” as “any person who in the ordinary course a business, regularly, on its own or on behalf of others, engages in debt collection. ”Thus, the definition of“ debt collector ”requires more than just“ debt collection ”.
Determining the scope of DCLA is further complicated by the use of nested definitions. The definition of “debt collection” refers to the collection of “consumer debts” which is defined in Section 100002 (f) as “money, property or their equivalent, due or due, or allegedly due or owed by a natural person due to a consumer credit transaction. ”It also includes mortgage debts and“ written off consumer debts ”as defined in article 1788.50 of the Civil Code. Article 100002 (e) qualifies “consumer credit transaction” as “a transaction between a natural person and another person in which goods, services or money are acquired on credit by that natural person from the other person primarily for personal, family or household purposes.
Recognizing that many companies are confused about the scope of DCLA, the DFPI recently added the following notice to its website:
In addition, DFPI will not take enforcement action for unauthorized activity under Section 100001 of the Financial Code if there is a request for good faith legal advice, or a similar request submitted in good faith through DCLA. @ dfpi.ca.gov, before and pending as of December 31, 2021, regarding whether a potential plaintiff is “in the business of debt collection.”
Unfortunately, anyone reading this notice for the first time today will not be able to take advantage of this leniency.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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