Cameron Miranda
In California, law firms can act as debt collectors, but they must obtain a license to do so. This is due to Senate Bill No. 908, which came into effect on January 1, 2022, to protect consumers from financial predators and abusive business practices. Attorneys who regularly sue on behalf of their clients for consumer debts must become licensed debt collectors through the Nationwide Multistate Licensing System & Registry (NMLS). This has caused some law firms to stop pursuing consumer debtors to avoid the need for licensure. While assisting in debt collection, law firms are subject to the same rules and restrictions as other creditors or collection agencies, with a few special rules. For example, they must make it clear that they are acting only as debt collectors and not as legal representatives.
| Characteristics | Values |
|---|---|
| Can law firms act as debt collectors in California? | Yes, law firms can act as debt collectors in California. |
| Requirements for law firms to act as debt collectors | Attorneys need to pass the bar exam and professional responsibility exam, and their moral character must be reviewed. They must also complete mandatory ethics classes. |
| Additional requirements as of January 1, 2022 | Attorneys must obtain an additional license to be debt collectors. Each branch office involved in debt collection must be licensed with the Nationwide Multistate Licensing System & Registry (NMLS). |
| Rules and restrictions | Debt collectors cannot harass, threaten, or verbally abuse debtors. They cannot make false or misleading statements, nor can they call at unusual or inconvenient times. |
| Laws and acts | The Fair Debt Collection Practices Act (FDCPA) and the Rosenthal Fair Debt Collection Practices Act (Rosenthal FDCPA or Rosenthal Act) in California. |
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What You'll Learn
- Law firms acting as debt collectors must obtain a license
- Attorneys are subject to the same harassment laws as debt collectors
- Law firms must disclose when acting as debt collectors
- Law firms can use legal enforcement mechanisms to collect debt
- Law firms must follow the Fair Debt Collection Practices Act (FDCPA)
Law firms acting as debt collectors must obtain a license
In California, debt collectors do not need to be licensed. However, since January 1, 2022, Senate Bill No. 908 has required attorneys who regularly collect consumer debts on behalf of their clients to obtain an additional license to be debt collectors. This includes attorneys who regularly call, write demand letters, or sue consumers for their personal debts.
The licensing process involves 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 be licensed with the Nationwide Multistate Licensing System & Registry (NMLS). A bond must be purchased, the attorney must be fingerprinted, undergo credit checks, and finally obtain a debt collector license approved by the California Department of Financial Protection & Innovation (DFPI).
Some law firms have stopped pursuing consumer debtors to avoid the need for licensure as a debt collector. However, attorneys may continue to sue consumers while their debt collection application is pending.
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Attorneys are subject to the same harassment laws as debt collectors
In California, attorneys who regularly call, write demand letters, or sue consumers for their personal debts are subject to the same harassment laws as debt collectors. These laws include the federal Fair Debt Collection Practices Act (FDCPA) and the California law, known as the Rosenthal FDCPA.
The FDCPA prohibits abusive, unfair, or deceptive debt collection practices, such as causing a telephone to ring repeatedly with the intent to harass or using false, deceptive, or misleading representations. Debt collectors are also not allowed to swear, threaten to illegally harm someone or their property, threaten with illegal actions, or make false statements about the debt they are collecting.
If a person believes that an attorney or debt collector is violating these laws, they can report their complaint to the Attorney General's Office, the FTC, or the CFPB. Additionally, they can contact a lawyer to help them take action against the debt collector for damages.
To avoid being contacted by debt collectors, individuals can send a written request to the collector to stop all communication. This request can be sent by certified mail with a return receipt, and it is important to keep a copy of the letter and receipt. Once the collector receives this request, they can only contact the individual to confirm that they will stop communication or to notify them of potential legal action.
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Law firms must disclose when acting as debt collectors
In California, attorneys who regularly call, write demand letters, or even sue consumers for their personal debts must apply with the Nationwide Multistate Licensing System & Registry (NMLS) to become licensed as debt collectors. This is because Senate Bill No. 908, which came into effect on January 1, 2022, includes attorneys under the definition of debt collectors.
Both Federal and State law require that any time a law firm sends a collection letter to a consumer regarding a debt, they must disclose that they are acting only as a debt collector. This rule exists because collection agencies know that a letter from an attorney is more likely to frighten the consumer into paying the debt than a letter from a collection agency. As a result, some collection agencies associate themselves with an attorney or a law firm and use that attorney's letterhead and signature to send out their collection letters. However, this can be misleading, as the consumer may assume that an actual attorney has reviewed and formed an opinion on the case when this is often not the case.
The Fair Debt Collection Practices Act (FDCPA) makes it illegal for debt collectors to use abusive, unfair, or deceptive practices when collecting debts. This includes the false representation or implication that any individual is an attorney or that any communication is from an attorney. Law firms must therefore be transparent about whether they are acting as debt collectors or as legal representatives when contacting consumers.
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Law firms can use legal enforcement mechanisms to collect debt
In California, law firms can use legal enforcement mechanisms to collect debt, but they must be licensed to do so. Senate Bill No. 908, which came into effect on January 1, 2022, requires attorneys to obtain an additional license to be debt collectors. This bill was enacted to protect consumers from financial predators and abusive business practices. The licensing process involves completing applications, purchasing a bond, undergoing credit checks, and fingerprinting.
Licensed attorneys who collect debt are subject to the same restrictions as other debt collectors. They cannot harass or abuse debtors, make false or misleading statements, or use obscene or profane language. Attorneys must also disclose their identity when contacting debtors and are required to send a validation notice within five days of first contacting the debtor. This notice should include the amount owed, the name of the creditor, and instructions on how to dispute the debt in writing.
Debtors have the right to request that debt collectors, including attorneys, contact them only by mail or through their attorney, or they may set other limitations. Debtors can also ask debt collectors to stop contacting them entirely, although the collector may still sue or report the debt to credit reporting companies.
If debtors believe that an attorney or law firm acting as a debt collector is violating the law, they can file a complaint with the California Attorney General's office, the Federal Trade Commission (FTC), or the Consumer Financial Protection Bureau (CFPB). These agencies enforce laws such as the Fair Debt Collection Practices Act (FDCPA) and the Rosenthal Act, which prohibit abusive, unfair, or deceptive debt collection practices. Debtors may also be able to file a lawsuit against the attorney or law firm for violations of these laws.
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Law firms must follow the Fair Debt Collection Practices Act (FDCPA)
In California, attorneys who regularly call, write demand letters, or sue consumers for their personal debts must apply with the Nationwide Multistate Licensing System & Registry (NMLS) to become licensed as debt collectors. This is due to Senate Bill No. 908, which came into effect on January 1, 2022, to protect consumers from financial predators and abusive business practices.
The Fair Debt Collection Practices Act (FDCPA) is a federal law that limits the actions of third-party debt collectors who are attempting to collect debts. The FDCPA sets out rules about when, how, and how often a third-party debt collector can contact a debtor. This includes restrictions on the time of day and number of times that contact can be made. Debt collectors cannot harass or abuse debtors, nor can they make false or misleading statements. For example, they cannot lie about the debt they are collecting, use words or symbols that falsely imply their letters are from an attorney, court, or government agency, or call at unusual or inconvenient times. The FDCPA also prohibits the use of unfair or unconscionable means to collect debt, such as the collection of any amount unless expressly authorized by the agreement creating the debt or permitted by law.
If a debt collector violates the FDCPA, debtors may submit a complaint with the Consumer Financial Protection Bureau (CFPB) or take the debt collector to court. The FDCPA does not protect debtors from those attempting to collect a personal debt, such as a creditor.
In California, the Rosenthal FDCPA extends the law to creditors, meaning they are also subject to the FDCPA's regulations.
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Frequently asked questions
Yes, law firms can act as debt collectors in California. However, since January 1, 2022, Senate Bill No. 908 has required attorneys to obtain an additional license to be debt collectors. This applies to attorneys who regularly call, write demand letters, or sue consumers for their personal debts.
To become licensed as a debt collector in California, attorneys must complete the application process through the Nationwide Multistate Licensing System & Registry (NMLS). This involves applying for both the attorney's business and each branch office involved in debt collection. A bond must be purchased, the attorney must be fingerprinted and undergo credit checks, and they must obtain a debt collector license.
Law firms acting as debt collectors in California are subject to the same rules and restrictions as any other creditor or collection agency, including the Fair Debt Collection Practices Act (FDCPA) and the Rosenthal FDCPA. They cannot harass or abuse debtors, make false or misleading statements, or communicate in a way that constitutes harassment. They must also clearly state that they are acting only as debt collectors when sending collection letters to consumers.
Yes, a law firm can file a lawsuit against a debtor in California. Law firms, as third-party debt collectors, can use legal enforcement mechanisms such as issuing subpoenas with restraining notices against a debtor's bank accounts and wage executions. However, they are limited to the state jurisdiction where the attorneys are licensed.
