NMLS Slowdown Frustrates Debt Collector License Applicants As Application Deadline Looms
California had been one of 16 states that did not require licensing of debt collectors. That changed last year with the enactment of the Debt Collection Licensing Act. 2020 Cal. Stats. ch. 163 (SB 908). The law takes effect on New Year's Day. The Department of Financial Protection & Innovation began accepting applications for licenses on September 1 of this year. The DCLA requires the DFPI to allow debt collectors and buyers who apply for a license by year-end to operate after January 1 pending approval or disapproval of their applications. Cal. Fin. Code § 100000.5(c). Debt collectors and buyers who apply for a license after December 31, 2021 will be required to wait for the DFPI to issue of a license before they can operate in California.
Applicants must apply through the Nationwide Multistate Licensing System (NMLS) which has reportedly been very sluggish in opening new accounts for applicants. The DFPI apparently believes that it lacks authority to change the statutory deadline. It has, however, issued the following statement (emphasis in original):
The DFPI is aware of the temporary slowdown in obtaining a new Nationwide Multistate Licensing System or NMLS account. With various DFPI year-end deadlines, the NMLS team is experiencing an unprecedented volume of account requests. The DFPI acknowledges the predicament this puts entities in who are trying to comply with the new debt collector licensing requirement to apply for a license by Dec. 31, 2021. We would like to assure you that DFPI is aware of this issue and will not take any action against a debt collector solely on the basis of the temporary slowdown with NMLS. We are working cooperatively with the NMLS team to be able to verify those that have attempted to apply. Thank you for your patience.
Note that the DFPI will be able to verify when an applicant attempts to open an NMLS account. Therefore, debt collectors and buyers should not count on any lenity from the DFPI if they have not attempted to establish an account with the NMLS before year-end.