California Department of Financial Protection and Innovation "DFPI" issues notice of proposed rulemaking under Debt Collection Licensing Act

On February 9, 2024, the California Department of Financial Protection and Innovation (DFPI) announced a proposed regulatory update focusing on specific reporting and assessment requirements under the Debt Collection Licensing Act (DCLA). Notably, this proposal does not address prior public comments related to a separate rulemaking effort concerning the DCLA’s scope and its applicability to creditors—those who extend consumer credit.

Assessment Obligations for Licensees

Under the DCLA, licensed debt collectors are required to contribute annually to the Department’s operational costs. This assessment, set to take effect in 2024, is determined based on each licensee’s proportional share of expenses. A key factor in this calculation is the "net proceeds" derived from California debtor accounts over the previous year. However, the term "net proceeds" currently lacks a statutory definition.

To provide clarity, the proposed rule seeks to amend Title 10, Section 1850 of the California Code of Regulations, introducing a formal definition of net proceeds:

• For debt buyers, this represents the total amount collected on a debt minus a prorated share of the purchase cost, before factoring in expenses.
• For purchasers of non-defaulted or non-charged-off debt, the calculation follows the same principle as for debt buyers.
• For third-party collectors, net proceeds equal the total earnings received from clients for debt collection services, irrespective of fee structure, before deducting costs.
• For first-party collectors, net proceeds include fees and charges collected from debtors that would not have been due if the debt had been paid on time, also before deducting expenses.

This clarification is expected to bring consistency to the assessment process for licensed entities operating under the DCLA.

Annual Reporting Enhancements

In addition to assessment requirements, the DCLA mandates that licensees submit annual reports to the DFPI Commissioner. The proposed rule expands on existing reporting guidelines by specifying additional disclosure requirements and mandating electronic submission of reports.

One key clarification requires companies to report the total number of California debtor accounts handled in the previous year, broken down into:

1. Accounts paid in full.
2. Accounts settled for less than the full balance.
3. Accounts where partial payments were made but an outstanding balance remains.

Further reporting details are outlined for purchased accounts, portfolio accounts, and collection attempts that did not result in payment.

Public Comment Period Open Until March 27, 2024

Stakeholders and interested parties have until March 27, 2024, to submit comments on the proposed rulemaking. More details on the DFPI’s regulatory update can be found in the official notice.

‍