Confusion abounds over the scope of the Debt Collection Licensing Act – Finance and Banking

Confusion abounds over the scope of the Debt Collection Licensing Act - Finance and Banking

Allen Matkins Leck Gamble Mallory & Natsis LLP

06 January 2022


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Section 100001(a) provides that “no person shall engage in
the business of debt collection in this state
without first obtaining a license . . .”.   Section
100005 authorizes the Commissioner of Financial Protection &
Innovation to take specified enforcement actions if in her opinion
” a person who is required to be licensed under this
division is engaged in business as a debt
collector without a license . . .”.   Note
that these two statutes 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 debt” while Section 100002(j) defines “debt
collector” as “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”.   Thus, the
definition of “debt collector” requires more than simply
“debt collection”.   

California’s new Debt Collection Licensing Act, Cal. Fin.
Code § 100000 et seq.,  took effect on
January 1, 2022.  However, the legislature’s inartful and
inconsistent draftsmanship has resulted in a great deal of
uncertainty over who exactly must be licensed.

The determining the scope of the DCLA is further complicated by
the use of nested definitions.  The definition of “debt
collection” refers to collection of “consumer debt”
which is defined in Section 100002(f) as “money, property, or
their equivalent, due or owing, or alleged to be due or owing, from
a natural person by reason of a consumer credit
transaction”.   It also includes mortgage debt and
“charged-off consumer debt” as defined in Section
1788.50 of the Civil Code.    Section 100002(e) term
“consumer credit transaction” as “a transaction
between a natural person and another person in which property,
services, or money is acquired on credit by that natural person
from the other person primarily for personal, family, or household

Recognizing that many businesses are confused about the scope of
the DCLA,  the DFPI recently added the following notice to its

Furthermore, the DFPI will not bring an enforcement action for
unlicensed activity under Financial Code section 100001 if there is
a bona fide legal opinion request, or similar request submitted in
good faith via,
prior to and pending as of December 31, 2021, regarding whether a
prospective applicant 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

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