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California DFPI Addresses NMLS Delays on Licensing Applications

Licensing department assures debt collectors that delays in accessing licensing applications through the system will not result in regulatory action.

01/04/2022 4:00 P.M.

4 minute read

Before the end of 2021, the California Department of Financial Protection and Innovation (DFPI) had received approximately 600 applications for debt collection licenses, which were required to be submitted via the Nationwide Multistate Licensing System & Registry (NMLS) no later than Dec. 31. At the time, the DFPI assured applicants that as long as they submitted an application by Dec. 31, they could “continue to operate in California pending the denial or approval of their application.”

 

But on Dec. 23, after becoming aware that NMLS had been experiencing an overwhelming volume of traffic, the DFPI provided a different reassurance, posting on its website the following statement:

 

The DFPI is aware of the temporary slowdown in obtaining a new Nationwide Multistate Licensing System or NMLS account. With various DFPI year-end deadlines, the NMLS team is experiencing an unprecedented volume of account requests. The DFPI acknowledges the predicament this puts entities in who are trying to comply with the new debt collector licensing requirement to apply for a license by Dec. 31, 2021. We would like to assure you that DFPI is aware of this issue and will not take any action against a debt collector solely on the basis of the temporary slowdown with NMLS. We are working cooperatively with the NMLS team to be able to verify those that have attempted to apply.

In addition, the DFPI has since posted a statement indicating that it would not bring an action for unlicensed debt collection activity: “If there is a bona fide legal opinion request, or similar request submitted in good faith via [email protected], prior to and pending as of December 31, 2021, regarding whether a prospective applicant is ‘in the business of debt collection.’”

ACA Members Meet with DFPI

The DFPI also met with the Debt Collection Advisory Committee, including ACA International members, Dec. 16, and provided an update on the licensing process.

Melinda Lee, deputy commissioner, debt collector licensing with the DFPI, said there are updated Frequently Asked Questions (FAQs) on the debt collector licensing webpage and the department expects the approval process to continue through 2022 and possibly 2023.

The following persons are required to obtain a license to engage in the business of debt collection in California pursuant to the DCLA:

  • Any person who, in the ordinary course of business, regularly, on the person’s own behalf or on behalf of others, engages in debt collection.
    • Note: This appears to encompass most first-party collections and most creditors’ collections, except where the entity or individual collecting the debt has an exemption under the California Debt Collection Licensing Act, as courts have held that the California Rosenthal Act does not exclude from its definition of debt collector those who collect debts that are not in default.
  • Any person who composes and sells, or offers to compose and sell, forms, letters and other collection media used or intended to be used for debt collection.
  • Any person who engages in the business of a debt buyer. A debt buyer is any person or entity who regularly engages in the business of purchasing charged-off consumer debt for collection purposes, whether it collects the debt itself, hires a third party for collection, or hires an attorney-at-law for collection litigation.

The department said during the Dec. 16 meeting that applicants should not be concerned if they do not receive a response about their license for an extended period of time as long as they submitted an application prior to Dec. 31.

All debt collectors and debt buyers operating in California are required to apply for a license with the department. A license is required for the licensee’s principal place of business and cannot be transferred or assigned. A separate license is not required for each individual branch office; however, branch offices must be registered via the NMLS. The licensing application is available on the NMLS website.

ACA’s licensing team is also available to help answer questions on the application process. Visit ACA’s licensing website, email [email protected] or call (952) 926-6547.

“We’ve known this has been coming for some time and can walk members through the steps to apply for their license and make sure they know the DFPI’s requirements,” said ACA Licensing Manager Angela Butera.

Surety bonds must be submitted with license applications. Debt collectors must maintain a surety bond in a minimum amount of $25,000 payable to the Commissioner of the DFPI and issued by an insurer authorized to do business in California.

The NMLS offers free online courses and state-specific checklists to guide licensees through the process, available on the Annual Renewal page of the NMLS Resource Center. The renewal period in most states runs Nov. 1 to Dec. 31.

Application Submitted … Now What?

Applicants who submitted their materials by Dec. 31 are encouraged to sign up for the DFPI email subscription service for updates.

DFPI officials are also available to answer questions, but noted during the meeting last month that more complex questions will take longer for a response.

Applications from new debt collection agencies that have never operated in California will be reviewed by a separate team than those reviewing the applications from agencies that can continue to operate their business while their application is considered, Lee said.

The DFPI also encourages license applicants to access sample licensing forms available through the NMLS Laws and Regulations – Debt Collection Licensing Act page to show their license is pending.

California Updates from the ACA Huddle

ACA recently presented more information on California’s regulations on the Dec. 29 ACA Huddle.

June Coleman, of counsel at Messer, Strickler, Burnette Ltd., Cindy Yaklin, president of States Recovery Systems Inc., and Kelly Parsons-O’Brien, collections manager at Pacific Credit Services, helped members understand the new regulatory laws that took effect in California on Jan. 1, including the DCLA.

Visit the ACA Huddle webpage to access recordings of the ACA Huddle presentations.

 

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