by Matt Pridemore, Vice President
Public opinion is generally driven by the media and negative press has defined so much of our industry for years. State lawmakers have continued to respond to this by making the collection industry one of the most strictly regulated white-collar industries in the US.
If your firm is directly contacting consumers, you are clearly on the radar of both predatory attorneys and the various state regulators. While there are still a number of possible statutory exemptions available to traditional consumer agencies and there are a number of states that still do not have a debt collection licensing requirement, that trend is quickly changing. Over the past few years a number of states that historically did not require a debt collection license have “closed their borders” and now require a debt collection license. There is a couple more states that have current legislation moving through their legislative bodies that if enacted will require a debt collection license.
Historically there have been other segments of our industry (collection attorneys and both active and passive debt buyers) that either through specific statutory exemptions or ambiguous statutory language were seemingly less regulated from a licensing perspective. These segments of our industry are no longer flying under the radar and in fact the majority of the regulatory opinions published in recent years relate specifically to them. The trend suggests that in the future all segments of our industry will be required to meet the similar licensing requirements.
Collection Attorneys:
Ten years ago you would be hard pressed to find a collection attorney that maintained a debt collection license in more than a few jurisdictions. Now through a series of legislative changes, regulatory opinions and other authoritative guidance more than twenty (20) states clearly require collection attorneys to obtain a debt collection license.
Debt Buyers:
While there have always been states whose statutory language specifically included debt buyers in their definition of a collection agency, it was not until the last few years that debt buyers have landed squarely on the radar of both predatory attorneys and state regulators. This increased exposure first affected “Active” debt buyers and more recently “Passive” debt buyers.
Active Debt Buyer – Both Purchase and Collect Themselves:
More than twenty-five (25) states require Active Debt Buyers to obtain a debt collection license.
Passive Debt Buyer – Purchase Accounts and Outsource all Collections:
States are clarifying their position as it relates to Passive Debt Buyers. Almost ten (10) states have issued opinion letters clarifying their state’s licensing statutes to include Passive Debt Buyers in the definition of a collection agency therefore requiring them to obtain a debt collection license.
Debt collection licenses are not the only licenses that debt buyers (both active and passive) should concern themselves with. Oftentimes the statutory regulations that govern the underlying asset apply to any subsequent purchaser. In other words, if a license was necessary to originate the loan in a particular state it is not uncommon for the debt buyer to be required to maintain the same license. Prior to purchasing a portfolio, it is imperative to review the underlying statutes that regulate the portfolio in question and understand what licensing requirements there might be.
Summary:
The point is that more regulation and stricter requirements are the rule and not an exception to the rule. We are not operating in a static regulatory environment and it is imperative that you know the new legislation and authoritative guidance and understand how it impacts you.
