“I Am an Attorney and a Debt Collector and Any Information Obtained Will be Used for That Purpose”

Previously, when demanding money from consumers and proceeding with litigation, I only needed to admonish a consumer when I corresponded with them, verbally or in writing, giving them the warning that is the title of this article. Both California and Federal Fair Debt Collection Practices Acts (“FDCPA”) governed my actions. Then, Governor Newsom contended that FDCPA laws were simply not enough to protect consumers.

Now Attorneys Need an Additional License to be Debt Collectors
Senate Bill No. 908 came into effect on January 1, 2022. This bill protects consumers from financial predators and abusive business practices, but includes attorneys under the definition of debt collectors. “[A]ny person who, in the ordinary course of business, regularly, on the person’s own behalf or on behalf of others, engages in debt collection…” must now become licensed as a debt collector, including attorneys who regularly collect their clients’ consumer debts by litigating.[1] Some persons are exempt from being debt collectors, but attorneys are not part of that group.[2]

So, after attorneys pass their bar exam and their professional responsibility exam, even after their moral character has been reviewed, attorneys are not exempt. Mandatory ethics classes and the plethora of lawsuits brought against attorneys for violations of both the Federal and State FDCPA, with their attendant one-sided attorney fee awards in favor of consumers, were apparently not sufficient to protect California consumers. Now, attorneys who regularly sue on behalf of their clients for consumer debts, must also become licensed debt collectors through the Nationwide Multistate Licensing System & Registry (NMLS).

This licensing process starts with completing applications for both the attorney’s business and each branch office. If the law firm has multiple offices, each branch involved in debt collection must also be licensed with NMLS. A bond must be purchased, the attorney debt collector must be fingerprinted (again), undergo credit checks, and finally have a debt collector license approved by the California Department of Financial Protection & Innovation (DFPI). Attorneys may continue to sue consumers while their debt collection application is pending. A license check may be performed to see if a debt collector is licensed at this website.[3]

It took countless hours to file an application with NMLS, including hours of discussions and emails with the NMLS and DFPI representatives. This attorney paid $530 to NMLS thus far to process the application and, over a year and a half later, no debt collector license has been issued. Note, a yearly bond in the amount of $25,000 must also be purchased with an approximate cost of $288 each year.

Some law firms have stopped pursuing consumer debtors for money owed on consumer debts in order to avoid licensure as a debt collector. Remember, attorneys who regularly call, write demand letters, or even sue consumers for their personal debts must apply with NMLS to become licensed as debt collectors. Might this definition include you?

Debt Collector Attorneys also Need to Take Heed of Ever-Changing Laws

On January 1, 2023, new laws came into effect regarding post-judgment collection of consumer debts. Code of Civil Procedure §685.010 now lowers the post-judgment interest a creditor can collect on medical debt under $200,000 and certain personal debts under $50,000 to five percent per annum. Judgments against these consumer debtors may be renewed only once, and then only for a single 5-year renewal period.[4] Previously, there was no limit to the number of times that a judgment against a consumer could be renewed.

Other laws have been added or changed in recent years to allow debtors more time to respond to renewals of judgments, requests for wage garnishments, and requests for bank levies.[5] In particular, CCP §683.170 gives judgment debtors another chance to move to vacate a judgment due to ineffective service of process of the initial summons and complaint. This gives them another bite at the apple that had long since expired under CCP §473.5 and 473(d). However, the time for creditors’ attorneys to respond to requests for exemptions has largely remained the same. An exception is CCP §703.550 dealing with bank levies, which extended the 10-day limit to respond to a debtor’s claim to exemption to 15 days, with an additional five days if the claim is served via mail. Note, this extension was not included in the wage garnishment statutes, which remain at 10 days. Sheriffs have been quick to return funds to employers when the 10-day limit to respond runs, so time is of the essence.

There is no doubt that debt collection practice has hurdles on top of hurdles. How many times has a client achieved a judgment after a hard-fought trial, but the attorney is unable to collect on that judgment for various reasons? The ultimate reward comes when an attorney is not only able to obtain a judgment for their client, but also collect on that judgment.

[1] Cal. Fin. Code § 100002(j); see also Civ. Code § 1788.50.
[2] Fin. Code § 100001(b)(1), (2).
[4] CCP § 683.120.
[5] CCP §§ 683.170(b), 703.550, and 706.105.