In 2021 California joined other states in regulating consumer debt collection practices and requiring that any business that collects on a debt that is a result of a consumer credit transaction (1) be appropriately licensed by January 1, 2022, and (2) comply with the DCLA’s practices, policies, and procedures.  Businesses can apply for and obtain a newly created Debt Collector License (DCL) to comply with licensing requirement of DCLA.  Businesses that hold an active California Finance Lender License (CFL) also comply with the licensing requirement of DCLA and are not required to obtain a DCL.

Because (1) the California Department of Financial Protection and Innovation (DFPI, formerly the Department of Business Oversight) did not publish the application for the DCL and begin accepting applications until this past September, (2) delays due to COVID-19, and (3) the ordinary length of time expected to apply for a receive a license from the DFPI, the legislature set up DCLA so that businesses who submit a DCL application on or before December 31, 2021 will have temporary compliance beginning on January 1, 2022 until the DCL is fully issued or denied.  Temporary compliance allows a business subject to DCLA to continue to operate pending issuance of the DCL.

If a business does not have an appropriate license or does not have temporary compliance by January 1, 2022, the business may not engage in debt collection activities – some may not operate at all – until an appropriate license is fully issued.

Many businesses in California have been seeking a CFL in recent months because a CFL complies with the licensing requirement of DCLA and enables the business to engage in additional business activities.  This begs the question: If a business submits a CFL application on or before December 31, 2021, will the business be granted the same temporary compliance under DCLA as those businesses that submitted an application for a DCL?

We have been trying to get an answer to this question from the new Debt Collection Licensing Unit at the DFPI for quite some time.  We finally received an answer this morning that NO, businesses who submit a CFL application on or before December 31, 2021 will not have temporary compliance under DCLA and may not operate until an appropriate license is fully issued.  This is the case even though the CFL operates functionally the same as the DCL.

ALL BUSINESSES THAT ENGAGE IN CONSUMER DEBT COLLECTION THAT DO NOT YET HAVE A FULLY ISSUED CFL OR HAVE NOT YET SUBMITTED AN APPLICATION FOR A DCL MUST SUBMIT A DCL APPLICATION ON OR BEFORE DECEMBER 31, 2021 OR BE FORCED TO CEASE OPERATIONS THEREAFTER.

If you have any questions about the application of DCLA or whether your business is subject to licensing requirements of DCLA, if you would like assistance with any aspect of the DCL application or have any questions, please contact Kurtis Urien or Lorraine Harden-O’Brien by phone at (714) 972-2333 or by email to kurtis@mrclawcorp.com or lorraine@mrclawcorp.com.