# Debt Buyer Licensing: Navigating State Requirements & Expectations > This session addresses the complex state-by-state licensing framework for debt buyers, covering regulatory expectations and compliance strategies for passive and active participants. It is designed for debt buyers and financial services professionals who need to navigate varying state definitions, asset-specific requirements, and the risks associated with licensing and regulatory scrutiny. Recorded: 2026-08-17 | Runtime: 57 min ## Key takeaways - State licensing requirements for debt buyers often vary by jurisdiction and depend on factors like debt ownership, servicing arrangements, and collection activity. - Regulatory focus on technical compliance, such as entity name accuracy on licenses, has increased, leading to potential penalties for minor discrepancies. - The classification of a debt buyer as a collector under the FDCPA may depend on whether the principal purpose of the operation is rooted in debt collection. - There is a tension between the need for oversight of third-party vendors and the risk that excessive auditing may lead to vicarious liability. - Over-licensing can create unnecessary regulatory targets, as licensees face ongoing reporting obligations even in states where they have no active collections. - Organizations are encouraged to perform thorough pre-purchase diligence and consult legal counsel to assess licensing requirements based on specific asset classes and business models. ## Transcript Okay, good afternoon everyone. Thanks for joining us today. we are going to talk about debt buying and state licensing. thank you for joining us. I am Christy Barger, chief revenue officer with Cornerstone Licensing. Excited to have two industry legends with me today, Joann Needleman and Ari Durban, both of Clark Hill. Joanne's a legend. Joanne's a Joanne's a legend. Do it is the legend. I'll just throw you in there. A polite way of saying I'm very old. So I get to go home and say Christy called me a legend. I'm Oh man, I got to tell my wife about this. This is great. Awesome. And it's recorded. Yes. Right on. There we go. Awesome. All right. Well, Joanne leads Clark Hills financial services regulatory practice. She advises banks, financial institutions, and financial service companies on regulatory matters and represents them in examinations and investigations before federal and state agencies, including the CFPB, FTC, and OC. A former member of the CFPB's consumer advisory board, Joanne brings a practical, real world perspective to helping clients prepare for regulatory scrutiny. She also co-leads Clark Kill's banking and financial services practice. Also with us, Ari Durban supports the growth of Clark's Clark Hills regulatory advisory services working with financial institutions and fintech companies entering the financial services space. He leads and coordinates examinations with state and federal regulators and advises on a wide range of consumer protection laws. RA brings experience in risk management and corporate governance with a focus on helping organizations navigate regulatory expectations in a practical structured way. Why are we here? For the next hour, we're going to talk about debt buying and state licensing. debt buyers face a state-by-state licensing framework that can be difficult to map and even harder to maintain as regulations shift. Some states require a license before accounts are purchased while others focus on collection activity, servicing arrangements, disclosures or reporting obligations. It's a lot for us to figure out. Few things I hope you will say be able to say when you leave here today is that we've covered what regulate what regulators are paying attention to in the current environment. when debt buyer licensing requirements are triggered, how state expectations differ from purchasing, servicing, or collecting, and some common issues tied to thirdparty collection agencies and servicesers. you're invited to ask us questions as we go. I will try to keep up with them in the chat. if I miss them, we will try to save some time at the end. One final piece of housekeeping, our legal disclaimer. Due to the nature of the topics we'll be discussing today, we need to establish the following disclaimer. This information is not intended to be legal advice and may not be used as legal advice. Legal advice must be tailored to the specific circumstances of each case. Every effort has been made to asssure this information is up to date. It is not intended to be full and exhaustive explanation of the laws in any area. However, nor should it be used to replace the advice of your own counsel. Okay, guys. We've been around for a while. So we've seen over the last 10 to 15 years lots of changes court rulings FDCPA CFPB regf enforcements have raised the bar regulators now focus on licensing alignment who owns the debt who contacts the consumers activity different activity can trigger licensing including pre-purchase steps vendor oversight and government a lot for us to talk about today. All right, I'm gonna throw a question out there and get us started. Does the consumerfacing name exactly match the licensed entity in every state? And how does that align with debt ownership and servicing? Because we're doing multiple things here. You're not throwing us a softball. No softball, guys. I just first want to start off by saying thank you. I mean, I know Chrissy paid us a big compliment. We owe an even bigger one back. I myself am a former client of cornerstones when I was in my tenure as general counsel of Harris and Harris for many years. So learned to work together with cornerstone developed into a really nice professional friendship but also working relationship where we have clients of ours at the firm at Clark Hill who work with Cornerstone. has clients that when things maybe get complicated or go ary they work with Clark Hill. So we like to work collaboratively on client issues on other things and we've had just a great experience doing that with cornerstone and certainly due to you know Christy's expertise and her team's expertise. I think you brought up something which is you know licensed name we are seeing this a lot because there are names that change when there's affiliated entities involved in a purchase. I know later we'll talk a little bit about there's SPVS involved, there's other entities involved, there's even reorganizations that happen after the sale by design like in a sale and purchase agreement where it says, you know, we'll cease being a LLC in Ohio upon sale and we'll convert to an LLC in Delaware. because of different taxation reasons or investment purposes for there are people well smarter than me who might be doing that. Well, you know, did you just change the designation of or the name of the entity that might be engaging in quote unquote debt collection and yes, we're seeing probably in the last five or six years, you know, a lot of nitpicking. I think 5 years ago it was, you know, if you have the name XYZ company LLC and it's XYZ company Ltd, you know, they're basically like, you know, let's flip a coin, call it, change it. There's no problem. Now, we've got entities, and you guys are all seeing this in the licensing space that technicalities are leading to violations and monetary penalties. And that's happened a lot as the CFPB has sort of taken a step back. the states are feeling very empowered. It's not just states that are, you know, the classic blue states like the Californiaiforns of the world, which we know create tons of licensing burdens, or, you know, places like Massachusetts, which we know have been difficult for a long time. But it's places like Florida where you know if licensing notices they've done a ton of three four $5,000 small little consent orders or little fines and fee packages towards agencies towards debt purchasers for technical violations. So you mentioned Christie a technical violation. I think those are things to, you know, long and short, be very mindful of off the bat because it wasn't an issue 5 years ago, but it is an issue now. let me say again, I reiterate what Ari said with respect to thank you Christie for inviting us. I do want to also echo my appreciation to Cornerstone, and our partnership and working together. It is. I've learned a lot and Christy is my go-to when I just don't have the answer and I hope that she picks up my or answers my email when I send it to her. so it's a great first question because I think that to some degree the point of this webinar is to really talk about the fact that it a lot has changed in the last five or years. And it used to be that debt buyers, it wasn't simple, I'm a debt buyer. I'm going to buy a portfolio. These have become very sophisticated, complicated transactions, more than I've known in my career. In the last couple years, I've been fortunate enough to get involved with a lot of them. And they're complicated and they're done strategically for a reason, right? Because there are all different entities. People need to protect their interest and everybody now has a different role. And it's those roles, I think, that really dictate your org chart. who's going to be the outfront consumerf facing person as you've indicated that is going to stick their neck out and be the lency. But now all of a sudden the people behind that can be easily scrutinized. So there is just a there's a lot more discussion that goes on when these transactions happen and how they are set up that now includes the licensing piece. the licensing was like, "All right, we're going to set up this, you know, group and this or chart and then we'll go we'll call Christy and we'll get the license that we need in a particular state." that's not the case anymore. I mean, there is a really defined strategy that goes into these debt buying structures now like the likes that I've never seen as I said and I'm seeing more of in the last five years. So, there is a the biggest discussion is who's going to be the person sitting out front? who's whose name is going to be on the license, who's the one that is contacting the consumers and doing the activity. But there's also, and we'll talk a lot about this in this webinar today, is just because everybody's sitting behind, we're starting to see that scrutiny still exists. You may not be licensed, but you may have liability, whether it be through FDCPA or state law or whatever the case may be. there's some there's still some responsibility there and we'll talk about that as well. So I think it unfortunately a lot of these questions that we'll talk about today it really depends you know does the name ultimately on the license have to match identically? Well, that's usually dictated by NMLS or the state or whatever. They're going to want that. I mean, I've Christy, you know this, we've had situations where if the comm is in the wrong place, the licency is not getting issued because that's not what the what the corporate identity is on the secretary of state of that particular state. So, there is all those little tiny nuances, but it is it's a village and everybody in that village is involved in this process. I guess is the point of what I want to make here and I really think that the biggest kind of development we've seen because you know Joanne you talked about consumerf facing right we used to think of you know passive debt purchasers as sort of being separate from the debt collection environment they are hiring vendors who are hopefully licensed but they themselves are were seen a decade prior as more the investors behind the operation they for that reason were not really attaining a massive amount of lure because they said we're not a debt collector and there's only one or one Christy will tell us one or one or two states I know Oregon has a debt purchaser license but otherwise you're looking at a lot of asset class licenses or you're looking at an actual do we need a debt collection license well you know right around COVID right around COVID time six now I can't believe it's six years ago it started You know, six years ago, there's a string of cases, right, which said, look, we understand that passive debt purchasers are not regularly collecting debt. And that is very true. You're not regularly collecting debt. You're having other people regularly collecting debt. But there is a second prong under the FDCPA to being a debt collector. And that second prong right is basically having the principal purpose of your operation rooted in debt. The pr you know and so if you are if you are using vendors to collect debts and the root of your operation is receiving that money from debt collection. your principal purpose of your business has been deemed to be debt collection. Whether that's right or wrong, that is how the courts have seen it. That's how, you know, multiple different circuit courts have seen this. And so, you know, that wave of cases was 2019 into 2020. And so where that leaves us is under the FDCPA, we know a lot of passive debt purchasers are indeed debt collectors even though they're not consumerf facing at all. Well, how does that become very difficult? Well, a lot of states define debt collectors and therefore define their licensing protocol in a way that parrots the FDCPA. So if courts determine that passive debt purchasers who the sole reason for their operating and the sole source of their funding is coming from other people's debt collection, other entities debt collection even if those other entities are licensed. It goes to say then that if you have state XYZ that parrots in their state statute similar terminology to the FDCPA, the logic then flows. You would need a license in that state as a debt collector simply in order to operate as a passive debt purchaser. And I'll tell you that sounds intuitive, but it's not because a lot of times the definitions are similar, but they're not exact. There's a word that's different. So now and or right like we're having issues of first impression and it's like are do you want to take a chance by not licensing in the state? Right. At the same time, there is such a thing as overlicensure. And we see this all the time where, you know, we just got off a call earlier today with a client. They have a bunch of branch licenses they really shouldn't have, but more branch licensing means a bigger target on you, means more scrutiny, means more regulation. So, you don't get a gold star for being overlicicensed. You really don't. So you get into these riskreward kind of decisions and that's where this real struggle has happened on the debt purchase side I think in the last couple years has been with passive debt purchasers because it doesn't sit right that you need these licenses but in many cases you do. Yep. And you guys made a good point too. So you know states like California they make it very clear that a debt buyer needs a license. Other states not so much. But then where it really gets tricky is the asset classes. There's a whole slew of licenses that are out there that a debt buyer is going to think they probably don't need until you get in there and you start reading the definitions and you looking at the I know this business activity does trigger this license. Even though you may not be doing the lending, it's still triggering those licenses. Correct. Can you give an example of some of those? Because sometimes we see and I'm I'll tell you I sometimes I get an inquiry about it and it's something I had never even heard of. I'm like this list could be there. I think there's up to like 200 or something asset class licenses. Like what are the most common ones that at cornerstone you guys are kind of seeing for clients? Yeah, absolutely. Lots of auto can trigger the need for a license. consumer installment contracts. those are a really big one. Payday, those types of things. But then it even goes deeper. It's, you know, if you're charging a certain interest rate or if you're charging, you know, the loan value was a certain amount. All of those different factors. It's like a multilevel a multi-le level of licensing that you have to look at. I always start by saying, "Let's talk about debt collection, then let's talk about asset classes, then let's talk about, you know, the specialty licenses." and it can take a scoped project from a pretty small passive debt buyer to really large because of all the different type of debt that they're going to be buying. And I think what makes that really tough is it's not streamlined at all. And that, you know, we all know our debt collection regulators. you know, Joanne, Chris, and I, we know a lot of them by name, right? I'll be honest, I don't know, you know, I know all the people in Illinois that are doing the collection agency stuff, but the sales finance agency license, I don't know. Right. And it might they might still fall from the department of financial professional regulation there but it's different personnel and they don't it's not like this is so streamlined where they can see the other license and you know NMLS does help to some extent but a lot of these places may even have one of those licenses on NMLS and one of them is kept on a native system u in the same state and I think that becomes really difficult because you don't know where your holdup is going to come from if at And it might be on the collection agency or debt purchaser side, but it also might be on these asset class licenses. Absolutely. You know, Kansas and Oklahoma, those come up a lot. Obviously, California. I mean, there's just there's a ton of states out there that have additional licenses that have to be looked at, and that's where you guys come in to do those legal assessments, to really get in the weeds with the client's business plan and, you know, the portfolios that they're looking at. you know, and that kind of will take us into this next one. You know, when we're looking at or when someone's looking at a portfolio to buy, you know, what do we control and document pre-purchase activity? You know, data reviews, diligence, instate solicitation to avoid some unintended licensing trigger. That's something that comes up quite often. Well, that's hard. It's really hard because we usually in situations where we're involved with debt purchasers or investors who are looking to assist debt purchasers, our job is to do that due diligence. We have to do that due diligence because we have to advise them on the risk of the portfolio the and the regulatory landscape risk that exists. I we do that doing that a lot in the last year just because there's so much money coming into this space right now. so you know look I think I again a lot of my responses to these questions are going to be it really depends. I don't think due diligence on a portfolio per se can trigger licensing. It really is going to depend on the asset class and what you're going to do once you obtain ownership of those accounts. so I haven't I mean maybe it's been your experience, but I haven't seen just because of pre-purchase activity that ultimately triggers licensing. It's it's ultimately going to be what happens once you take ownership. Now, there could have been, you know, just you're buying debt. it may have been defaulted before you purchased it. It may have been worked before you purchased it. I don't know. It could be from a debt collector. Maybe it's not, you know, if it's a first party that now has gone into default and now someone is buying it, that may be the case. But, you know, I think it depends on who the seller is. Is the seller a debt collector? is the account defined as a debt under the FDCPA? Those are specific things that we have to look at, but due diligence in and of itself does not trigger it. it well you know one some of the ambiguity I think around it is centered on a few things I think we were talking the statutory definitions themselves they create a lot of the uncertainty and on pure debt collection licensing we've seen a lot you know trying to engage in the RFP process and the need for lensure because a you know to bid an RFP they're asking for the license in a given state, right? You want to represent a hospital system in the state of XYZ, they're asking where's your state stuff. So, you're preemptively sometimes getting a license even before you have that stuff. But there's a question of aside from a RFP requirement, is there an actual law or requirement that needs it? And I think the, you know, the inclination is to say no. But there is a lot of gray area in these statutes, right? They say some of them say engaging in business right some of them say purchasing delinquent accounts for ser for servicing ind directly or indirectly participating in collection activity are you indirectly participating in collection activity if you're running some analytics on a portfolio sample you know minds could probably you know brilliant minds could probably disagree on that I think the question becomes S if you ask a regulator I'm coming into a Joanne's laughing because we talk about this all the time. If you ask a regulator I want to run diligence on a portfolio, you know, not necessarily legal due diligence or compliance diligence. I want to run some analytics on something to test a portfolio to see if I want to buy it. Do I need and you're a state that requires debt collection license for purchase of accounts. Do I need a license to do that? The regulators, because they're afraid to say no, are gonna say yes. To Christiey's point. Now, if you go out and do that like a good soldier every time, there is a risk. And that's why, to your point, this really isn't legal advice because we'd have to look at each one of your circumstances. What is the asset class? Like Joanne said, what is the, you know, you know, are you looking at taking accounts that were from a publicly traded company that has more scrutiny on it where the transfer is being scrutinized already by different regulator, right? So e every question kind of comes up differently, but a regulator will probably tell you yes, okay, we want to control everything because you touched these accounts, you engaged in business upon the accounts, you analyzed these accounts, you looked at consumer information. we have an obligation to protect consumer privacy. There's privacy elements at play. Whereas, as you know, defense lawyers and regulatory lawyers, you know, we'd say, you know, there's no reaching out to consumers. This is not done for a business purpose. This was, you know, there is, you know, defenses to all that. I will tell you, if you go and get licensed for all pre-collect activity you do, you're going to make yourself pretty miserable. And, you know, what are the weighing? What are the chances of a I'm not saying getting caught because I'm not necessarily giving them the idea that they're right and saying you need a license, but you do have to weigh that riskreward because there is a risk to getting those licenses and then getting them on a pre-collection basis and sitting with them and then going through annual reports and as we're seeing in a lot of these various states, even when you have zero collections, go tell California you have zero collected this year and that you got the license as a precaution. They're going to put you through an entire rigorous process and asking you why you put zeros. You know, who needs that? So, I think this question will probably, if I put my prediction hat on, will become a bigger deal as AI gets used more and more in the evaluation pro product. States are very hesitant right now to allow full-fledged use of AI. using it in a debt purchase capacity to see if you want to buy accounts. I could see that falling into a nice little PR battle for a regulator. So, I could see the pre-collect stuff taking on more legs in the future the more and more debt purchasers and investors are relying on AI to evaluate portfolios u because that adds another complex, highly scrutinized ingredient into the you know into the situation, I guess. Yeah. And it's so different with every state. I mean, Colorado, if you have the collection agency, you don't need the supervised lender, but in Connecticut, you may need the debt collection license and the small lender license. So, it's just so different with every state. It's it's a mess. It's hard to it's hard to know. Well, and it's hard to do it on your own, right? I mean that's why you need you know Christie you guys have like a matrix for this you guys are seeing it and one of the you know best parts you get you know Christy and cornerstone keep your information private they're not sharing this with other companies but the knowledge and knowhow is shared the fact that they dealt with a regulator the week before on a different issue is shared like the fact that the context are there is shared so these kind of matrices you guys put together about if this then that does help sort of evaluate what you need in a given place and you might as well do it with people that have done it before. So that's kind of a plug for you Christie for the cornerstone group because it is really hard to make these determinations like in a vacuum. you sort of do need to know what others have done. And that's not information that's just volunteered, but it's more like knowledge, knowhow, and word of mouth of dealing with these regulators. so I think that's like really important to be able to say, you know, if these are if this is the asset class, this is the type of purchase you're doing, this is going on, that's going on, you need these three things in Tennessee. I'm just making that up, but it's like super helpful. And one of the things that's always been interesting to me and kind of intriguing is, you know, these are debt collection licenses. So, a passive debt buyer is not going to have the same documents or business plan that a state's going to want to see. But sometimes they don't care. They want to see it anyway. Or, you know, sometimes we know this has worked before, so you can share that kind of knowledge. It's that's always been interesting to me of kind of how the states have looked at it. You know, it's a checklist. We want it, but we don't have it because we're a passive debt. Well, it's on the checklist, so we got to have it. Well, it's kind of like financials, too. If it's a new entity that is formed that wants to purchase a portfolio, they want to see, you know, audited financials. I don't have them. I mean, it's a new entity. I mean, I So, and that's I think where it comes in having the relationship with regulators. It's also knowing how to talk to them, too. I mean they are not us you know we are not them they are not us and you have to talk to them it's got to be an education it's got to be a conversation where we can educate both sides in figuring out what is it that they ultimately want I get if a new lency is coming into a state they want to make sure that they have you know financial there's there's they are financially sound get that I have worked in many situations where we've been able to either get an opinion from an accountant or we've able to have unodudited financials or something where we can show maybe a balance sheet what money is in the account now how money is going to be spent. I mean there is a lot of creativity that has to come with this but to your point yeah I mean they have their checklist and sometimes the checklist just doesn't work. So, well, there's a natural tension, right? I think there's a natural tension being a debt purchaser as opposed to just a debt collector and a mo and an even higher degree of tension for a passive purchaser because on one end you know the age-old idea was you know yeah we're a licency on our own because of this principal purpose prong and other things and we want to make sure we're not directly liable for violations of the FDCPA. We want to make sure we have oversight, we want to make sure we're auditing and we're monitoring. but at the same time, the more you audit and the more you monitor, you become sort of in control and you've ratified conduct. And that those are phrases that are used in vicarious liability cases, right? And so I think the CFPB has picked up on that. you know, there is, if you look at what remains, one of the final cases that inexplicably they just have honed in on is a is a passive debt purchaser. they've released and dismissed a lot of cases. It hasn't been done in this case. It's crazy it hasn't been done. because of all things you know and this is an entity that is a well-known industry entity that goes far and beyond on their compliance initiatives but they just you know the CFPB is spun in knots right about tied up in knots about you know well you're responsible for this downstream conduct regardless of what happens and it's interesting that's a case they haven't relented on so clearly regulators there's, you know, you're damned if you do and you're damned if you don't. If you don't have an auditing and monitoring system in place, you're seen as delinqu you're seen as deficient, you're seen as being as creating a harm for consumers. If you do and something happens that may be wrong, you could be held vicariously liable because you ratify the conduct. So, damned if you do, damned if you don't. That is a tension that is there not just with the CFPB but with licensing authorities, other state financial regulators that I just think that purchasers have to be mindful of. Yep. This is a great little segue into let's let's talk about SPV some more because that's something that I've definitely talked a lot more about these days. you know, the SPVS are set up to buy certain portfolios. we talked about a minute ago about a checklist. So, they still have to have financials, net worth requirements, the ownership chart. There's a lot of disclosures and a lot of personal information all those different investors have to give. this is common though. All these SPVS are kind of starting up. So, let's talk about, you know, the structure with those. Who owns the debt? you know, we talked about having different companies doing the collections, but the SBVs have to have their own licenses as well. So, a lot of times if you have multiple companies, you're going to have multiple licenses, the same licenses for all these different companies. Let's talk about that for a minute. yeah. Holding title, you know, all this good stuff. Yeah. Throw me the hard question. Sure. yeah. very complicated. Very complicated. We have we just finished up something Ari and I we spent a lot of time talking about structure. A lot of time. And I think that licensing if you have a sophisticated entity that is looking to buy a bunch of portfolios, looking to set up multiple S SPVS, maybe is going to have private equity involved. That's a very broad discussion. you're you need to talk you need to have corporate counsel, you need to have licensing counsel, regulatory counsel, and you also need to have tax counsel because a lot of those decisions about who's going to be out front, who's going to be the one whose name is there, what SPV is going to do for what potential asset class, that is a multi-prong discussion. certainly would be my advice. So I think that many entities that we have worked with have been very careful as to maybe not have as many SPV vehicles, maybe just have one and then have other entities that break out from that because it's just easier to manage that one that's there as far as a license as far as licensing goes. But I don't know Ari, you might have other opinions about that. But that's what we've seen in the last couple deals we've done. Just some of these structures are so complicated that Yeah. I think it's hard for regulators to Again, you ask them, they'll make sure everyone on the tree has it and you're like that's not practical either. Chrissy, what were you look like you were going to say something very smart right there. Well, I had a great question come across. Does everybody know what an SPV is? Special purpose vehicle. We want to define that for a moment. That's a good idea. I'll let Ari hand. No, I'm gonna hand it to Joanne as the I was gonna hand it to Ari. You're the legend. So Oh, thanks. Well, I mean, again, on the org chart, the special purpose vehicle is really the It depends. I'm gonna say this way too much. Special purpose vehicle is going to be the entity that it could be the entity that is buying the debt. It could be the entity that is servicing the debt. I mean, but usually it's the one that's buying the debt. So, there'll be financial entities behind it, but that's the one who's actually going to go out and sign the purchase and sale agreement potentially. or it could be or it could be the one that is gets the debt immediately after It could be, right? Like it could be either or. Yeah. It's a way to isolate certain assets and liabilities from a parent company that you want to protect. so you know, when you say special purp, it's created for this special purpose for this. It's really, it's not an operating company that has its name on the side door of a minivan that's driving around at all. Like this is a legal almost a legal fiction that is created for tax planning, for liability planning to kind of put a company in between a parent. you know, and perhaps the eventual purchaser. It could be where assets sit after the sale. it could be used to acquire and hold title to a specific portfolio. and to simplify financing or securization agreements. I mean that's why I'll tell you when I see that stuff I'm glad we have guy in our office Jim that we bring in and Jim's dealing with you know all of that stuff but there is the fact of tailoring licensing bonding or reporting obligations to you know SPV. So, you know, on a deal we were just on, it was, you know, the SPV itself, I believe, did not end up getting licensed. It was, you know, downstream a purchaser that was a buff. It was a it was two or three buffer between the finance company and the ultimate serer between the finance company, the purchaser and the ultimate serer. But yeah, again, that's the deal. That was that particular deal. Everyone different. It's it's everything is different. I think it depends on asset class. It depends on the type of portfolio you're buying. It also depends on, you know, endgame strategy of the particular portfolio. So, as I said at the beginning, there's a lot of cooks in this kitchen that you have to really that has to come together on these bigger deals when you're using especially one or more SPVS. But if regulator C, you're using it to isolate litigation exposure from a parent. You're using it to you know like hold specific account like if you're using it for your benefit, they see that sometimes as using it against theirs, right? So, you know, if you ask them the point blank question, hey, we've got, you know, two SPVS on this deal. One's holding credit card accounts, one's holding medical. this is they're gonna be like license everybody. You know, like that's the thing. And Christie, I don't know. You're probably the best person to ask like are you in a given transaction seeing multiple licenses have to get obtained or is it usually like the entity that is to Joan's point like listed on the sale and purchase agreement? Like how does that really like kind of and sometimes it just depends I think on who the purchaser is, right? If they're affiliated with private equity, they've got to answer a different lender. That's a lot different than a small purchaser who can probably do this without having to do all these minations. Yeah, some of these deals get very complex and there's just a lot of SPVS involved. And yeah, some of them may have the same license for multiple SPVS. It's not just get one and that's our parent company that holds the license. That doesn't work everywhere. Right. Right. Yep. so during exams, is that where did the states really understand the whole SPV thing or is that where you guys really see a lot of questions? Maybe on the front end, it's just we provided what was needed on the checklist and the structure and the org chart checks the box. Is that where during the audits and stuff, is that where it can really get tricky? I think it's more on initial lensure, Joanne. like the exams, they're looking at consumer activity and if you're if you're if you're, you know, a debt purchaser, how you're collecting on the accounts or how your subservices are collecting on the accounts, what you're doing in relation to, you know, complaints. Oh my god, there's an allegation of door knocking by one of your what did you do? How did you track that down? and how did you, know, pick that apart and make sure that one complaint out of 9,000 was accurate or you know the that's how those kind of investigations have been going. I have you know if you're but coming under investigation happens a lot of times because you have a license right so you know sometimes it's be it's for unlicensed activity but a lot of times it's just your time is up because you're a light you're a ly and that's the danger of overlicicensing is now you're answering all sorts of questions are they related to structure and SPV not so much but like we talked about earlier if they see a name discrepancy or comma out of place or other things. You know, they might say this isn't the proper entity that's, you know, licensed. It could it could get it could go that way. The SPV stuff, I think it's a little outside their pay grade for some of that, but doesn't mean it couldn't come up. I would say there's certain states, Connecticut being one of them, that really examine at the licensing phase the org chart. and I've seen this, I mean, this is even precoid, where they go really up or down the co the org chart and want to know who every entity is and how they're related. Some states you give them an org chart and they're like, that's fine. Here's the license entity. It matches up. so the inquiries can really are very state specific. With respect to exams, you know, it depends on the regulator. Look, in every examination you get a questionnaire and they want to know who your affiliates are. So to the again that goes to how do you structure this you know maybe don't make them an affiliate maybe just make them a true investor or lender to that particular debt purchaser. So, when you're licensing, you do have to think about the ecosystem of what you're going to be existing in and know that especially if you're a larger organization in a very aggressive state or in a state that would subject you to an examination. You know, how are you going to explain that if examiner comes in? But I think to Ari's point, they're looking at the cons in examinations, they're looking at the consumerf facing activity. However, if you have subservices or if you have if you are a passive debt buyer that happens to have a bunch of subservices and they're getting a lot of complaints and you know they're they're concerned about some of the activities, they may go upstream and that's when it starts getting really tricky and that's where we do a lot of our regulatory due diligence especially for investors and private equity to say what is you know I'm getting involved in this what is the risk in this and am I going to be pulled in to this examination. Are they how far upstream are they going to go if they find something bad? and as you as we all know, regulators, especially at the federal level, we saw this in a lot of hearings and now we're seeing in the state, especially with the makeup of some of these state regulators that are changing as of July 1st. you know, they don't like private equity. They don't like investors. They don't like our industry. So, the scrutiny, I think, will start to increase. I think they are looking at relationships generally between debt purchasers and larger kind of yeah parent entities you know saying okay your company is named you know I'm just looking on my desk purll collection you know whatever it is like what whatever name you have but it turns out that is actually from the parent company of the hand sanitizing company and they're a huge operation they are looking at, you know, what whales they have because that does mean money. So, we've we've been we've actually represented a few passive debt purchasers that have told us that different law firms or collection agencies that they used have come under CIDs or subpoenas. You know, New York does that a lot. They'll just say wake up one day and be like, "Let's go and investigate what this company is up to." And what they were kind of looking at is send us your agreement with your debt purchaser that you're collecting for. And you know, we're like, why do they have access to this type? Why do they want this? Well, it turns out they're like, well, we thought that they were affiliated. They were not. We thought they were affiliated through common ownership and we're making sure that, you know, the law firm was not connected to the debt purchaser and that there weren't profit sharing from the law firm to non- attorney. We're like, what are you talking about? it's crazy, but they're cons they're trying to kind of unwind some of these relationships. So, we've seen subpoenas come up where debt purchase agreements for the first time have been subject to some of those inquiries in order to kind of show and really kind of not the purchase agreement, but the placement agreement where the purchaser places it with a subser scrutinizing some of those relationships for really no reason, but to just so they could get a better understanding of the economic marketplace, I think, and sort of see where some of the bodies lie. so I do think that you know yeah we could see more action related to that and how it relates to SPVS or how it relates to different corporate affiliates or how it relates to you know big parent companies that they'd love to tax in some way or fine or fee or you know whatever it might be. All right. Well, I knew if the three of us got on this thing we would run out of time before we covered everything. before we kind of move to our final topic here, we have a good number of questions that I was missing. I apologize for that. let's just hit a couple of these real quick. I think some of them fast. are we talking about limited to accounts and default at time of purchase? It really depends. delinquent, performing, defaulted, all of that can matter. It's specific by state again as to if a license is needed, right? does white label servicing for a debt buyer impact the licenses the debt buyer holder needs? White labeling. So white labeling traditionally like what like using like I think of white labeling as like first party collections usually like or customer care related where you're you know calling out as an entity. So you know if you're if you're calling out as the purchaser rather you know Yeah. that affects their vaulted. Yeah. and it's defaulted, right? Like, you know, I don't know if you can do that. If they're an active, then they're, you know, they're seen more as an active than a passive. And yeah, it could, it can impact it for sure. I absolutely I don't know how you can white label purchase debt. because purchase debt usually is debt that is defaulted. I mean, maybe it's not. If not, you if it's not, okay. I mean, if you're purchasing, you know, accounts that are not defaulted, again, I think to Ari's point, that's going to depend on what state and what Christy said, you know, whether that type of debt requires a license. Most debt, especially in California, it's debt that's in default or has been charged off, I believe. well they wanted I think they wanted to amend the rules to say that they hadn't done it but state by state. Yeah. It's interesting. I wanted to bring this up earlier when we were talking about asset classes. There are a lot of states that are starting to change their asset class requirements for licensing to account for debt buyers. Illinois is one of them. Illinois had a really funky statute. I mean you read it. didn't really quite understand it. And we had some clients who were buying auto and were getting licensed. If I read the current iteration of the statute, I'm like, well, I don't know. That's really what the statute says. But I think in February, Illinois put in some red lines to be very clear that a license was required for any retail installment sales contract, including those that had that are subject to purchase. I'm paraphrasing what the actual red lines are, but you're starting to see more and more states be very clear in some of their asset class licensing requirements to include if those particular types of asset classes are sold and or purchased. So now remember also related to that question that was asked if it's let's say it's predefaulted let's say in a given state they match the FDCPA definition it's not quote unquote debt you know there's an argument that the purchaser who the items are being collected in their name while through the white label would not really need a license but remember principal purpose definition as well if the rest of their portfolios are delinquent debts or everything else and there's one file that's not, they might have obligations outside of that white labeled portfolio that you were talking about that triggers lensure anyways. So it's really a wholesome review and discussion based on the entirety of that debt purchasers operation. That's that's it's that's the Supreme Court case, the Sander case. that the Supreme Court looked at. but yes, the portfolio would need to be analyzed to make that determination for sure. Okay, one more before we circle back around to expansion. this is a good one I hear a lot. if someone buys only a few real estate notes, what is the consequences if they don't get licensed and they sell the note to someone who is not licensed? What happens then? Probably is going to depend on what state we're talking about. Some have gonna say and I mean, if you just buy a couple real estate notes, is that your principal purpose? I don't know. Right. Could be. Could be. I don't. If you set up a SP, if you set up, you talk about you set up an entity only to work those four accounts, then that's all it's doing. If it if that's a small basis of a bigger operation that does, you know, payment processing, then it's not. Joanne though, you had a really interesting experience on different type different types of licenses like CFL where you know one or two loans can get you in trouble, right? Well, I think yeah, you know, we had we Christiey's list was long and we're not going to get to all of it, but one of the things about well just licensing in general and I think that many on the call would see that this is happening. It's all of a sudden not an easy process anymore. It's a really complicated process, especially in states like California and it's not, you know, there is debt purchasing in the commercial space that, you know, as much as there is in the consumer space. but every, you know, for those on this call, a CFL license has become a nightmare in California. And I'm on a project with a client. I'm almost in year three. Now, these are, you know, entities that do a lot of things and buy portfolios all over the country and we know and Christy and I Ari and I have had this situation where, you know, companies acquire, merge, do all kinds of stuff and sometimes you don't know everything that's in the merger and there'll be accounts from states where, you know, they could potentially be collecting and they don't have a license. and that's a situation that I had in I'm having in California right now where company acquired what they thought were true equipment leases true credit sales that would not otherwise be subject to the CFL. Well, DFPI took a different position on that. So, I went from trying to get the client license to now trying to fend off an enforcement action. but that can happen. so be careful what you're buying. be careful, you know, make sure that you have a line of sight of your business, especially during the licensing process because things happen. If you got a big company and you're trying to get a license in one state, but you're doing things in other states, that could really impact the license. So, keep an eye out on what's going on. Well, that's a great way to end it. And that's kind of we didn't get deep into our third topic here, of course, because we ran out of time, but let's kind of end it with people are thinking of expanding into new states or looking at a new asset class. you know, my advice is going to be to you need to re-review the statutes because a new asset class is going to trigger some new licensing. if your matrix is over a year old, maybe you definitely need to check it again because things are always changing. y'all kind of ended up with the give us some pointers on looking to expand and get new asset classes. I'll just tell you this. It is a lot easier to discuss and fix issues before something is given to another party than it is afterwards. And what we're finding, you know, I use the example of the whole debt collection industry last year with California annual reports super confusing. A lot of people just said net proceeds were zero. We don't apply to doesn't apply to us. Here's why. We found a reason to stay. But you know what? They were tack they were we know they were gonna attach a levy right to they were going to everyone's net proceeds. So they were not going to let people say zero right now. Let me tell you if you had the discussion prior of how to come out to your number based on weeding out what might not be debt collection in California based on doing this doing this and then giving a number you were okay. If you said zero and then have to go back to the drawing board and explain yourself, as always, it's a lot harder to pull yourself out of quicksand, right, than to not get yourself in it. So, I think evaluating ahead of time, going through, we talked about like using a cornerstone, using a matrix, going through what your debt type is, if it is, if you do need to consult legal counsel, consulting legal counsel. If it is kind of a tossup issue, knowing where your liability may lies so that you go in an educated way because if you do it scattershot, it's a it's a problem too. Even if you're saying, you know what, I'm going to take the easiest route. I'm just going to get all these licenses. I'm just going to go and do it and I'm going to press play on it. That too carries with it a lot of liability and unforeseen consequences. So I think the preparatory work has to be done on the front end as painful as that is because everybody wants every deal done yesterday and all that stuff but the work that's done on the front end can reduce a lot of the aggravation on the back end. Agreed. I mean I would agree with that. I think also doing that front-end work really is going to come is going to be helpful in your negotiations because what a portfolio think what you think the value was or you should be paying for may be compromised by the issue of licensing. yeah so I think you really have to yeah you we I am not of the philosophy maybe others are that just to AR's point get licenses in all 50 states. I think there is a terrible overlicicensing quandry right now. and I think licensing if it is needed and required of course you need to be licensed but if it's not then there really needs to be a discussion and a costbenefit analysis about whether to do it or not and obviously a risk analysis as well because I think a lot of times and I know a lot of it especially with some of the clients that you may be dealing with and that maybe some of your servicesers or subserers may be dealing with require everybody to get licensed Well, that creates a whole host of problems and we're seeing that especially on the annual assessment side. so again, need to consider this and consider it very thoughtfully. For sure. Absolutely. And that's where you guys come in and so fortunate for the industry to have you guys. So, let's end it with saying thank you so much for your time. The feeling is mutual 100%. It's been a great hour. I knew we could continue this for three or four hours. So, yeah. We'll we'll do another one someday soon. Absolutely. Happy to. Thank you guys. I appreciate you. Thanks everybody for joining. Really appreciate it. Thank you. Absolutely. Thank you for joining. Bye. Bye. Canonical HTML: https://cornerstonelicensing.com/webinars/debt-buyer-licensing-navigating-state-requirements-expectations --- ## How to cite this page Cite as: "Debt Buyer Licensing: Navigating State Requirements & Expectations." Cornerstone Licensing. https://cornerstonelicensing.com/webinars/debt-buyer-licensing-navigating-state-requirements-expectations Published by Cornerstone Licensing. When quoting figures or legal requirements, link the canonical URL above and note the last-updated date (2026-08-17). The full content index for this site is at https://cornerstonelicensing.com/llms.txt.