Insights from ARM Industry Representatives close to California’s SB 908
The year 2020 has brought unprecedented days of difficulty on a level that hasn’t been seen since the ten plagues swept through the land of Egypt. If you can remember back to life before Covid-19, we started this year with the announcement that California and New York, two of the four most populous states, were planning to introduce debt collection legislation. In early April, New York Governor Andrew Cuomo signed Assembly Bill 9508 into law, but only after debt collection regulation had been removed from the legislation. While debt collection licensing legislation has been tabled in New York, the movement in California has continued to plod steadily along with committee hearings, revisions, amendments, and other progress through the initial stages of legislation.
In January there was the announcement that Richard Cordray, the first Director of the federal Consumer Financial Protection Bureau (CFPB), was summoned to help design a regulatory oversight to establish a “mini-CFPB” in California. Gov. Gavin Newsom rolled out budget plans proposing to revamp the state’s Department of Business Oversight (DBO) into a Department of Financial Protection and Innovation. Debt collectors, credit reporting agencies and fin-tech companies were among the industries that would be impacted by this new legislation. According to Cliff Berg, the President of Governmental Advocates who works closely with California legislation impacting the ARM industry, the Governor’s action raised a question about how oversight would be procedurally conducted and whether the new structures would circumnavigate the current Department of Business Oversight put in place by the Legislative branch. These events have the ARM Industry waiting to see how California will forge a path forward to give oversight for responsible collection regulation.
Berg notes that a looming question centers around collection industry oversight, whether it should be done by a Commissioner in the Department of Business Oversight as prescribed by the state legislature bill in the making, a yet-to-be-defined Department of Financial Protection and Innovation proposed by the Governor, or a combination of both with overlapping responsibilities.
Since early February, California State Senator Robert Wieckowski has championed Senate Bill 908 which has taken shape as the front-running bill to provide debt collection regulation. This bill, at the time of this writing, has moved through three versions and has unanimously passed in the California Senate Banking and Financial Institutions Committee. It was referred to the California Senate Appropriations Committee for further consideration and passed out of the Appropriations committee to the Senate Floor with a 6-1 vote.
SB 908, dubbed the “Debt Collection Licensing Act,” provides for the licensure, regulation, and oversight of debt collectors by a DBO Commissioner. The proposed measure would prohibit a person from engaging in the business of collecting on consumer debt in the state without a license ($300 fee plus a $100 investigation fee) and complying with reporting, examination, criminal background check, maintaining a surety bond ($25,000) and other oversight by the DBO Commissioner. The bill would require a DBO Commissioner, starting January 1, 2021, to take all actions necessary to be prepared to perform these duties commencing January 1, 2022.
David Reid, who serves as Director of Government Affairs & Policy for the Receivables Management Association International (RMAI), has been a part of a team that is working closely with California State Senator Robert Wieckowski to help shape the proposed legislation. Cornerstone reached out to ask Reid for his perspective on the proposed bill.
“We have had a very productive and collegial working relationship with Senator Wieckowski and his staff on this bill,” Reid said. “If we can get through some final tweaks to the bill, I think the industry will be very satisfied with the outcome.”
Reid states confidently, “With the latest amendments to this bill which RMAI lobbied to get included, the proposed legislation looks very similar to licensing bills the industry is familiar with in other states.” When asked if SB908 is close to its final form, Reid responds, “I believe there will be one more round of amendments coming to SB 908 before it is adopted by both houses of the legislature.”
Reid said he believes that roughly 98 percent of the language in the current version of the bill will be in the final version. He indicates that the outstanding issues include RMAI’s desire for an Advisory Committee made up of debt collection licensees, language preventing local municipalities from adopting their own debt collection licensing requirements, and several issues concerning the affordability of a license.
“As the first new debt collection licensing law to be adopted in a while,” says Reid, “California’s law could eventually serve as a model for New York State which will likely consider similar legislation next year.”
While the legislative path to debt collection oversight has moved forward, Gov. Newsom’s proposed Department of Financial Protection and Innovation has not advanced largely due to a budget crisis. Covid-19 has struck California’s budget hard, putting the state at a $54.3 Billion deficit. The lawmakers put forth a placeholder budget that addressed this deficit which passed on June 15. This version of the budget omitted the Governor’s “mini-CFPB” oversight plan.
This doesn’t mean that it may not reemerge before the August 31 recess as the Governor and lawmakers decide on which budget cuts to make. Reid summarizes, “It is not clear if the Governor’s proposal will be adopted this year due to the state budget crisis. If it is adopted, it probably won’t pass before August. If both SB 908 and the Governor’s proposal are adopted, the newly minted office will become the administrator of the debt collection licensing program. If it is not adopted, the California Department of Business Oversight (DBO) will administer the program.”