The California Department of Financial Protection and Innovation (“DFPI” or the “Department”) will have no shortage of applications to process before year end. Last week, the DFPI reminded industry participants that, beginning on September 1, 2021, it will make available through the Nationwide Multistate Licensing System (“NMLS”) the application needed to apply for a license under the Debt Collection Licensing Act (“DCLA”). Passed in September of 2020, the DCLA (SB 908) requires any person engaged in the business of debt collection, which includes debt buyers, to apply for a license on or before Friday, December 31, 2021, in order to continue to operate as a debt collector in California when the DCLA goes into effect on January 1, 2022. Failure to submit an application by the December 31st application deadline will preclude a debt collector from lawfully operating as a debt collector until the issuance of a license (Fin. Code §§ 100000.5, 100001(a)). For more details, the DFPI has published a series of Frequently Asked Questions (FAQs) at: Debt Collectors: Frequently Asked Questions | The Department of Financial Protection and Innovation (ca.gov).
Also, nearly two years after publishing a Notice or Proposed Rulemaking that will require all California Financing Law (“CFL”) licenses to be issued through the NMLS, and one day prior to an extended NMLS maintenance period (covered in our prior blog post), the DFPI announced that existing CFL licensees are now eligible to begin transitioning their licenses to the NMLS. Oddly, the announcement was made two days prior to the July 22nd end date for the comment period relating to the most recently proposed modifications to the proposed rules (see Fifth Notice of Modifications to Proposed Regulations). Upon final approval of the regulations, it is expected that all CFL licenses will be issued through the NMLS by December 31, 2021. This change may not be welcome for entities that do not presently have an NMLS record because establishing a Company Record through the NMLS to transition an existing CFL license onto the system is a separate process that takes time and effort.
Given the typical processing times (usually 90 days) for CFL license applications and the upcoming NMLS renewal period that begins on November 1, 2021, CFL licensees that do not have an existing NMLS Company Record should consider starting the transition process sooner rather than later. In addition, persons planning to apply for a CFL in the near future may want to evaluate options for making application through the NMLS versus submission of a paper application. If an applicant wants to apply using the paper-based application, the DFPI will continue to accept paper applications until the use of NMLS is mandatory. The DFPI expects that use of NMLS will be mandatory before year end, at which time the DFPI anticipates requiring each applicant to transition its application and surety bond onto NMLS. The paper application is available at Application for Finance Lender or Broker’s License.
For de novo applicants, it may be worth noting that the latest iteration of the proposed regulations provide a significant departure from the current policy relating to personal disclosures required of natural persons named in the application. The proposed regulations introduce a novel and sensible approach to identifying persons who are viewed as having control of a CFL licensee, which appear to limit disclosures to individuals or entities that own or control 10 percent or more of the outstanding interests of the applicant. For purposes of the CFL license application, the definition of outstanding interests would extend to equity interests in the finance company that have the power to (1) vote to elect or direct the management of the applicant or the finance company, or (2) conduct or manage the lending activities of the finance company. This new language, if finalized, may serve to eliminate the disclosure waiver requests that have become a routine part of the CFL application process.
Mayer Brown’s state licensing team is ready and able to assist with applying for the California debt collection license under the DCLA, transitioning an existing CFL paper-based license to the NMLS, or any other state licensing needs you may encounter.