Mastering Debt Collection Licensing

0:02

Welcome to our first ever Cornerstone licensing webinar. I am Joel Blackburn, senior director of business services here at Cornerstone. And today's topic is one that's near and dear to our hearts here at Cornerstone. While it probably is not as near and dear to your heart, it's one that can mean life or death to the success of your agency. In today's complex legal landscape, debt collection companies must stay compliant with ever evolving laws that vary from state to state. So whether you're already licensed or just starting the process, this webinar is designed to provide practical guidance on managing state-by-state licensing for debt collection. We are thrilled to be joined today by a guest expert attorney and longtime dear friend of Cornerstone, Leslie Bender, senior counsel with Eversheds Sutherland. Leslie counsels financial services and healthcare clients on a broad range of privacy, data security, and consumer financial protection laws. HIPAA data security, labor and employment, litigation, contracts, alternative dispute resolution and mediation, government affairs, regulatory relations, and change and project management. Leslie has more than two decades of experience in privacy and consumer financial protection and related regulatory relations before various federal and state regulators. In addition, Leslie has more than 30 years of experience working with financial institutions, collection agencies, and as a compliance consultant and trainer for hospitals. We are also joined by our resident licensing expert, guru, goddess, empress, supreme leader. Oh, no, let's go with senior director of licensing, Christy Young Barger. With 19 years of experience at Cornerstone, Christy has built and sustained valuable client relationships, serving as a trusted adviser in navigating the complexities of licensing and regulatory compliance. In her role, she works closely with industry leaders to guide clients through new licensing requirements tied to company activities, statutory compliance related to corporate changes and overall business expansion and development. And I've seen this part firsthand. Christy's passion for client success drives her to stay on top of the latest state licensing requirements and regulations. She's a frequent speaker and author within the financial services industry and she is committed to sharing her expertise and insights with others in the field such as you all. Thanks again for joining us together. We're going to cover best practices for staying compliant, common mistakes to avoid, and how to streamline your licensing processes. We'll break down the key legal challenges and offer strategies for protecting your business from fines and penalties. 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 assure this information is up to date. It is not intended to be a full and exhaustive explanation of the law in any area, however, nor should it be used to replace the advice of your own legal counsel.

3:26

You are all invited to share questions in the chat as we go. That chat is private so it will not be displayed publicly and we hope to have a few minutes at the end to go over some of them together. So jumping right in thought we would just begin Christie with just an overview of third party collections both on the consumer level and on the commercial level. If you want to just talk through this slide and some of the just where the landscape is in terms of consumer and commercial collections for licensing. Absolutely. Thank you, Joel. Leslie, thank you for being here with us today. So, third party collections, it's what we all do. It's different if you have if you're collecting on commercial accounts versus consumer. This kind of breaks it down into the states where there are requirements. Consumer, there's 35 states and four cities.

4:18

It's always funny to me that New York State doesn't have a licensing requirement, but three cities within that state does. So these are the states. Obviously California was the last one that was added a couple years ago now to have a consumer licensing requirement for collections. If you're doing just commercial, there are a few additional states where you're exempt if you're doing that where you do not have to get a license. It's very important to know though that commercial 100% commercial means 100% commercial. There are if you cross over to that consumer space, you're going to need to start looking at the additional states that have the licensing. If you want to go to the next screen, I just want to touch on that kind of briefly there. The way we get to those 35 states and four cities for the consumer is looking at open border states. Those are states where there's not a licensing requirement. There's a certificate of authority that's obtainable, but it's not required for the collection of debt.

5:17

Georgia, for example, where I'm sitting, we don't have a licensing requirement there. There's some states that have some exemptions for you if you're out of state. Michigan kind of is one of the ones that a lot of people try to take exemptions in where if you're not physically located in that state and you're only communicating with the debtors via interstate communications, there is an exemption from that licensing. If you're an attorney, there are some exemptions as well in addition to the regular out of state and open border exemptions. Some of them are if you're practicing law anywhere in the US, then you're exempt. Other ones you have to be licensed in this specific state in order to be exempt from those requirements. So a lot of attorneys do need to be licensed in the collection space. That kind of is a very high level, very fast summary of the states to look at when you're talking about collections.

Leslie Bender6:09

Everybody's business is different and so it's not just a checkbox. There's conversations that should be had with your provider, your staff attorneys to determine what licenses you need to look at. And you always need to be aware that there could be another state coming down the pike. So always be aware that it's not a one-and-done kind of thing when you're looking at licensing. You have to stay on top of what's going on in the industry. And so that's one of the things we're going to talk about here today. So Christie, how much uniformity and similarity is there between the application process between these states that do have the requirements? So they're all going to ask for the static information of your company, the name, the corporate legal name, the domicile state, your address, your federal tax number, your officers, and your ownership structure. All of the states are going to ask for that.

Leslie Bender7:00

Each state has its own specific requirements on top of the static information of the company that you have to disclose. When you get into some of the officer information, it gets intrusive and you know, I've had questions before of, you know, why is it the state's business that I have a tattoo or a C-section scar? That's just part of the process. So, you're having to give residential history, employment history. You answer disclosure questions. Have you ever had a felony? Have you ever been arrested? Have you ever had a bankruptcy or a foreclosure? You know, some of those things can be explained to the state, like if you've had a bankruptcy, obviously, you know, you supply additional information to the state.

Leslie Bender7:40

So, that's not an automatic if you have a yes answer, you can't license. However, on the criminal side, that's usually a conversation stopper for us. We're going to address that pretty quickly if that comes up in our conversations. And for the company, you know, some of the states are going to ask for business plans. They're going to ask for method of operations. Just different internal documents that you use. Those the states are going to look for those. They're all a little different. Financials are one thing that the states have some different requirements. Some want audited financials, others want an internal balance sheet. Some of them will take out goodwill. So a lot of different differences when you're submitting financials. That's kind of a big one that we talk a lot through with our clients as to what the states are going to look for. And unfortunately, there's usually not a whole lot of wiggle room there. If they say they want it, you're going to have to do it. Another thing that you have to supply is a collector list. It's very important to make sure that your collectors are registered before they start collecting.

Leslie Bender8:41

You don't want someone on the phone that's not registered with the state. Kind of like with financials, the states want different things on those. Some of them want residential addresses, some of them want alias names, others want hire dates. So, a lot of different little questions there that you have to look at when you're doing these applications. And that's one thing that Cornerstone does is we help you understand all the specific requirements by state because they are different. That's good. And then talk could I pop in and please do I just want to amplify something that Christie said is that it is never a good idea to surprise a state regulator. So if you believe that you are a control person at a collection agency and you are seeking a license and if you believe there are some things that you know you are uncomfortable maybe for your company to know but that you know for example that you had a bankruptcy or you had a tax lien or something like that. It is a very good idea to find a way either with attorney client privilege or some other way that you can have a conversation with your licensing folks about this because it never goes well when those forms are completed by your control persons and they say, "Nope, we're good.

Leslie Bender9:59

Nope, I never had that happen. Nope. Nope. Nope. Because the states really do pull the background checks and the states really do find things and they are much more forgiving on the front end if you can prepare a narrative for that control person who had some boos in their background that hit some boulders, had a bad divorce, had an injury, was out of work for a while. Whatever it is better to tell them upfront in a narrative and provide them with a constructive explanation for what happened and how you have taken steps to either resolve, you know, and prevent a future bankruptcy or resolve tax liens or things of that nature. But it is a lot harder when you've checked a box that you have not got something like that. And I don't mean anybody on this call, but I mean control persons that work for you and then have the regulator find it. They feel like potentially you have perjured yourself and they now are suspicious of you in a way that could impede your license. So Christie made the point, you know, these aren't showstoppers. You know, particularly states like California, they are very thorough in their background checks.

Leslie Bender11:19

Minnesota, they are very thorough and it goes a lot better to flag stuff upfront for them when you submit your control person's questionnaires than to wait and hope and spin around and think that they could find out they couldn't. And we recognize that there may be friction with your own employer there that could be challenging. So I just wanted to amplify that message that the states do really do these background checks and it's best to get ahead of some of these issues.

11:56

That's great, Leslie. And going off that theme, can one of you talk a little bit about NMLS and how the states can even pull from the same information? So what you report to one state is going to affect your licensing process in another state.

Leslie Bender12:13

I'll start and Christie you pop in because you have much more nitty-gritty. You know Christie and I spend a lot of time our personal time interacting with the state regulators both the examiners and the licensing folks who sometimes are quite different. And there is a super secret part of NMLS that the states share that us mere mortals don't see. They can share complaint data with each other. And spoiler alert, the Federal Trade Commission and the CFPB also have memoranda of understanding with the states and they all share data together. In fact, in some of their memoranda of understanding, they agree to pursue or not pursue enforcement. They say, "Oh, you take the lead. No, I'll take the lead." and so there is quite a bit of data sharing through the NMLS and also through the Sentinel database that the FTC maintains and the CFPB's complaint portal. So, it's super important to expect that stuff you report to one state will be known to others and to the FTC and CFPB. How that works, I'll leave to Christie to explain.

13:33

Yeah, that thanks Leslie. You know, the NMLS was started for mortgage licensing and over the years the debt collection, the lending, all the different license types have kind of jumped on because it's a centralized place for information. 15, 17 years ago, I went to an NMLS conference and they were saying that, you know, two or three states were going to jump on a year. Obviously, it hasn't gone that quick. But it is where they all see the information you provide. This NMLS has a definition of a control person and that's what the states are going to look at. You know it's again it's supposed to be a consolidated place where the same information is reported but just with California we've noticed that they look at the definition of a control person a little bit deeper than the other states. And so we've had a lot of clients who have had licenses in the NMLS forever and then California came along and they were like no so and so is also a control person. And so then they had to do the MU2. So while it's it helps it, you know, it's a centralized place for information, there are still some differences that the states are going to look at. And then like Leslie said, you know, they all see it. And so if you're reporting, let's say there's a consent order and you're only wanted to report it to, you know, California, you can't because there's 15 other states on there that are going to see that as well. So it's the states, in my opinion, the state's way of trying to make sure that you know they're informed of everything that's happening and that agencies don't report different things to different states. Like you can't have I couldn't be an officer in California and not in Arizona because it's on the NMLS. So you have to you know make sure your information is correct the same across all the states even if they're not in the NMLS.

Leslie Bender15:18

But the NMLS kind of made that point very clear if you tell everybody the same things.

15:23

Yeah.

Leslie Bender15:23

One other thing I wanted to pick up a question we have in the chat which is somebody has asked about commercial exemptions to confirm that it relates to B2B and I think it's important to understand first of all that there may be some changes in approach but the current Consumer Financial Protection Bureau and many state regulators view certain types of small business collections as potentially looking a lot more like consumer collections and a lot less like commercial exceptions. So if you have a sole proprietorship, if you have owners who are personally guaranteeing and part of your collection strategy may be to pursue personal guarantees, it would be very difficult to say with certainty 100% certainty that if you only do business-to-business collections, you are exempt. Similarly, if you do first party collections in states like Maryland and Massachusetts, you may also find that the pure third-party debt collection moniker has been expanded by state laws that have made the FDCPA or analogues of it apply to first and third party. So, we would strongly recommend that you review what your business strategy is and make sure that the specific facts of the type of people you're collecting from, if they are commercial, are they sole proprietorships or are they LLCs or incorporated entities?

Leslie Bender17:12

Are part of your commercial collection strategies involving companies where one might make a colorable argument that there is little difference between the principle of the company and the personal life that person you know like those are some things that could really trip you up. So it's very important to walk through some fact patterns. And of course, Christie's team is great at helping you do that. You know, because they understand how some of the regulators have processed license applications in the past.

17:57

Thanks for that, Leslie. I want to stay on you and kind of step out of some of the nitty-gritty real quick. So post-election, now that we know, you know, what the next administration is going to look like, since they're going to be in all likelihood leaning towards deregulation at the federal level, we know that the states many times will swoop in and cover for what they perceive the federal government is not doing in terms of regulation. So what are you hearing? What are you suspecting in terms of the next couple years in terms of states taking the mantle from the federal government in terms of regulation?

Leslie Bender18:38

Well, I have a magic wand, but I do not have a crystal ball. I'm always looking for a crystal ball. And I would tell you this, number one, the states have been very busy. The states just had a workshop to train many of their folks in conducting examinations. We know that many of the states who have been a little bit less focused on examining their licenses are now more focused on that. But I think it's important to set the table so that people understand that the states are free to do whatever they want. Whatever sea change there is in Congress or with the president of the United States, we have had an extremely busy year or two where the worlds between privacy and consumer finance have kind of melded and I would fully expect that to continue. Many of the consumer advocacy groups have been quite successful in Washington DC with their efforts. Now they may perceive that their chances of being successful are diminished and they may return to lobbying at the state level for more laws and more regulatory oversight. So I think that if deregulation is the force at play at the federal level, then all that energy for protecting consumers kind of has to go somewhere sort of like entropy or something. So I think that the professionalism of the state regulators has been really pretty impressive.

Leslie Bender20:23

There was very little turnover in state attorneys general who are sort of the state I'm calling the shots enforcers. There was only one seat flipped for an attorney general to become Republican and that was in the interestingly the state of Pennsylvania. But the others pretty much stayed steady. So, we know that those law enforcers are locked and loaded. They're engaged and we know that the state licensing regulators are very engaged and we know that they are looking at cyber privacy and consumer protection now because that's all kind of melded. So there is no time like the present to take a look at your compliance management systems, make sure they're up to snuff. And one thing that I have learned over the years working with the staff at Cornerstone is that it really saves everybody a lot of time and energy if you maintain your own kind of compliance management system.

21:29

Crib notes or outline or summary because then you can give it to the team and say, "Yeah, this person acts as our manager, but his title's really this or this person does this or really because as Christie pointed out, the states are all they are allowed to do whatever they want." So it's super important, you know, that we're aware of what we're doing internally and we give a lot of advanced notice. That way, our licensing folks can help us prepare for whatever the changes might be. That's good. That's good. Okay. So, Leslie, picking on you once again, I've got a question kind of about branch licensing in the post-COVID world because with the normalization of working from home, have the lines been blurred at all with what does and does not constitute a branch? Like for instance, how should an agency differentiate Tom in a call center versus Jerry in his basement office? What how would you explain that?

Leslie Bender22:38

I would say you're going to need to spend some time on that because the states are not aligned. Way out there at one extreme is the state of Washington. The state of Washington has different rules for different types of employees that you have. So that would be one extreme where people have to be in an office training for a certain number of days after hire and those rule and need to live within a certain distance of the office. Then you have states like Maryland that you know has been a really liberal state recognizing that you know work from home is here to stay and although we'll see if something changes after January about that in a lot of companies strategy. So Maryland is a lot more liberal. Somewhere in the middle is Nevada and they have gotten to be quite strict about their work from home rules and their rules for where your compliance person needs to be. So my advice is that there is not a one-size-fits-all that's going to answer that question. And if you are not really conducting business in a physical location, then you probably don't need a branch license for it. But understand that some of these states have not migrated away from branch licensing. They still want every address you use and that you hold out to the public to be a licensed address. You know, Nevada is a perfect example.

Leslie Bender24:25

So the transition from branches and licenses for all those branches, you'll have to go state by state and you'll also have to do some soul searching about why you are and aren't creating real estate locations associated with your company and if you truly need them. And I think there may be like an unintended consequence of laws like the state in Nevada where you're going to need more licensed locations because your compliance manager needs to now according to their new checklist needs to be in the office every day. I don't know what they'd be doing there if all of your debt collectors are remote. You know, I don't know why that person what would happen to have that person I don't even I can't even wrap my brain around it. But if you are licensed or relicensing in Nevada, take a close look at the qualified manager checklist because it contains requirements about where people are domiciled and where they work every day. Notwithstanding the work from home requirements that are their own regulatory interpretations of how they think it should be. I believe some of our trade associations have put together some pretty good information on kind of what to consider and what to look at and some of the requirements by the states. I know RMAI has something on their website that you can look for that kind of gives their guidance as to what you should do for work from home.

Leslie Bender26:04

So, I take a look at that. Yeah. And I think that one takeaway, and I know this isn't exactly what you asked, but I think it's really important to have all of your remote working employees re-up a written agreement every year that explains that they are acknowledging they understand the rules of the road for working from home, that they can't have customers come there and make payments, that there can't be two or more collectors in the same location, that they need to set up their home computing system so that every family member isn't walking through and can see all of the personal information of consumers on the screen. You know, some of these things are self-evident that your agency should maintain a checklist by employee of computing equipment checked out to them, that stuff shouldn't be printed to paper in people's home, you know, checks shouldn't go to people's homes, you know, different things like that. And I think that way, you know, people forget, people get busy. And I think getting your workforce to re-up also presents to a regulator, don't worry, we don't need more branch licenses because we've got this under control and we've got a pretty stringent work from home process and possibly even a little audit feature.

Leslie Bender27:32

You know, maybe you want to check in at least video and say, "Walk me around your home office, Bessie. Show me what you're doing. Show me where the computer's positioned." You know, show me where your family members are. And remember, whatever you see when you are videoing with your remote workforce is nearly impossible to unsee. So making sure people are clear on the rules of the road and are signing up every year that they're following them and being able to present that to a regulator really makes a difference to the regulators, I think. What do you think, Christie?

28:15

Yeah, absolutely. I mean, I've had several say, you know, we're not out to get people. We just want to know rules are being followed and processes are in place. And so while a lot of people see the regulators as, you know, not very friendly, I think they can be, they just want agencies doing the right thing, they want consumers protected, and, you know, if everybody's doing what they're supposed to and the bad players aren't out there, then that's happening.

Leslie Bender28:40

And understand, even though the regulators regulate us, the regulators don't know how our businesses really work. I mean, I feel so grateful that I have been in the business a while and I was a general counsel, you know, I was in-house because there are things that, you know, when you work inside a collection agency every day that you wouldn't otherwise know. How are you onboarding new clients? How are you reconciling your bank accounts? What do you do with unidentified checks? You know, these are all things that keep regulators up at night. You know, how do you know that when Bessie makes a $10 payment that gets credited to the correct account that Bessie thinks it's going to and then gets remitted? You know, many of the regulators in their licensing exams do these payment tracings and they want to know that you can do if you they don't know how it works. They still have sort of a June Cleaver, leave it to Beaver idea about this world. And many collection agencies today don't ever see a check in their office. They all go to lock boxes. Their correspondence goes to lock boxes. And these are things that you should have some very clear ways to explain to a regulator to avoid a lot of heartache. And maybe some suspicion down the road.

30:12

There's more questions in the chat. Christy, I think the first one's good for you. Just to confirm, California B2B agency who is exclusively B2B needs no license to collect in California. Can you confirm that? Yes, that's correct. They painted a really wide stroke with their brush when they implemented that license. But commercial collections is not one of the items or one of the actionable activities that makes that license required. That's correct.

Leslie Bender30:43

So let me manipulate the facts a tiny bit, Christy, and just get you to weigh in again.

30:48

I'm a commercial agency in California, but as a favor, I decide to do a few Main Street collections for, you know, a vacuum cleaner repair company that is renting space from one of my B2B clients or, you know, I just take some onesie twosies. Can I still rely on the fact that I'm a commercial collector to avoid licensing in California? Onesies, twosies is dealing with a consumer. Okay. So, we do see that sometimes that, you know, we'd like to be a we're can do people in the collections business and we'd like to accommodate, but the minute you start taking consumer accounts, even if they're one-offs, there's pretty much zero states that give you a free pass on licensing. Another question we have, it looks like folks would like to have a checklist for work from home. We can definitely make that available to you. Yeah. Yeah, we may be able to actually feature that in an upcoming newsletter because that's a fairly common question and I think make sure that you subscribe to our newsletter if you don't because it's got lots of good stuff in it and I think the work from home tips would be a great addition. But we'll get that. We'll get that. Who knows? Maybe it could be in my next compliance corner.

Leslie Bender32:12

Love it. Let's do it.

32:15

That's it. Other questions? I want to make sure that we This is your time and we are more than happy to answer. And Leslie, I had one other that I wanted to make sure we got to because I know we have a lot of existing licenses on the webinar today. And one that you know, since we're talking about pitfalls, one that comes up on a fairly regular basis is corporate changes. I don't think people are always aware of how their corporate changes can affect their licensing. So I want to spend just a minute or two kind of addressing that. Like what do the regulators care about? What's the time frame involved with reporting that?

Leslie Bender33:02

Talk a little bit about that for me. Sure. And you know, I'll qualify every answer by saying that there are some state-by-state differences. You know, there are some states that have made a conscious choice not to be NMLS. For example, Christy and I were just with the new head of the Colorado licensing and the new head of Colorado licensing said that Colorado has made a conscious choice to stay away from NMLS. So when we have change questions, states like Colorado that are choosing not to be NMLS states won't be getting that magical update through NMLS that you've described that Christy has described so beautifully for you. So that means it is really important for us to tell states in advance or at least ask them before we make what we think an overseer would think is a substantive change. Ask about it in advance, give notice in advance. For example, states like Hawaii have 60-day advanced notices for some things. You know otherwise they can fine you they can suspend your license they can enjoin you. So you know that would be a very important thing to keep in mind is that you need to know all these states advanced notice requirements. Myself, even though I could look them up myself and I'm embarrassed to admit this, I love reading laws and regulations. It's one of my favorite pastimes, that and my dogs. Ask me about either.

Leslie Bender34:47

But I always like to run my interpretations by Rashida or Sylvia or Christy or somebody at Cornerstone who has a much larger volume of conversations with some of these state regulators and I can say, I read it this way. How do you read it? And they might say, "Yeah, it does read that way, but this is what they do." And so I think that the rule of thumb should be if you're going to make a change, if you're gonna for if you're going to give back real estate, if you are going to have a corporate reorganization and now new people are going to be in charge, any of these kind of things, you should assume those are changes you need to report to licensing regulators before they happen. There are a few that give you 30 days from when you make that change, but you need to kind of bake into your corporate when you have your annual meeting or whatever it is, your picnic with your officers, whatever it is that you choose to do, you need to bake into your mindset, do we need to let a regulator know? I had a conversation this week with somebody who said, you know, we're going totally lockbox and we're gonna have all the money funnel into this way and we're just gonna at year end we're just going to shut some of these bank accounts. I'm like, hold the school bus, Bessie.

Leslie Bender36:15

We need to get in touch with some of these licensing folks that you do payment tracings for every year and make sure that if you are substantially changing your banking array, you may need to give them some notice. If they just got done examining you because if your exam looks totally different year over year about your banking, it could raise some eyebrows and that can create friction for your business. You do not want to be on a watch list. You do not want to be with friction with a licensing regulator. They are a pleasure to work with and get along with when you follow the rules or they believe that you are genuinely and with good reason. They believe you are genuinely asking about the rules before you interpret them yourself. In some instances, if you have a hardship or some other business case, you can apply for exceptions or exemptions either over a short term or a longer term with them, but I wouldn't count on that. You know, and I think that it is important to be mindful about where your workforce lives and how close they are to being and how much oversight you're providing and how you can document that. But I definitely think that you should bake into your DNA that if you're going to make changes of banking owners, operators, day-to-day managers, where you do business, you need to check a box that you've considered the licensing stuff before you take the plunge.

Leslie Bender38:05

Christy, what are your thoughts? Yeah, absolutely. A question that I hear a lot is, "Well, why can't I just update it when I file my renewals?" No, you can't do that. That just the states won't allow that. You know, changes happen. The states know it's going to happen. We know it's going to happen. You just need to notify the states accordingly. There's paperwork that's going to have to be done. There's notification letters. Obviously, if it's a corporate officer, there's MU2s and things that have to be done, fingerprinting.

Leslie Bender38:36

One thing that is kind of, let's talk about Nevada again for a second. Nevada has a collection manager where they have to test. If your Nevada manager leaves, you stop collecting and they don't offer that exam every day. It takes, it's a time frame. You have to submit a new application. The state takes 30 to 45 days to approve it. Then you get on the schedule and that schedule may be, you know, you may not test until January. So for that long amount of time, you're not collecting in a state. So obviously collection managers move, or I'm sorry, they leave your company, but be try to be prepared for when things like that happen. Have a backup in place. Know that it's not a quick process, and that frustrates a lot of clients, and I know and I feel it. You can't expedite things with the states. It just takes time. And so if you know changes are coming up, let's talk about them before they happen. Let's get paperwork in place. Let's get people starting to give fingerprinting and fill out applications. We can, you know, get it submitted as soon as possible, which is going to again help the process move along quicker. But it's still a process.

Leslie Bender39:44

And so the states don't like it if you're intentionally trying to hide something. I don't think clients, I think agencies try to do that, but I think sometimes they're like, "Oh, they'll never notice that." Yes, they will. Yes. And it's not always pretty when they do. You know, I years and years ago, I was the initial manager and I dealt with a company that they didn't tell Colorado about an ownership change and Colorado said, "Okay, let me see all the money that you collected from X date to X date." Oh, wait a minute. That was two years. And then they went in and based a fine on the activity that occurred during that time frame. And it wasn't pretty. They weren't happy. I mean, the state was like you should have known this and you even answered on the renewals that nothing had changed, and so that's a worst case scenario, but just tell the states of the changes. They know they're going to happen. Just do it the right way. Well, in some of the states, back to Nevada, you know, Nevada substantially rewritten its statutes and they took effect the most recent iteration October last year. And it's a misdemeanor.

Leslie Bender40:59

If you are operating a collection business, it's a misdemeanor every day. If you're operating a collection business in Nevada improperly, out of sync, and it is so easy. The other way that the qualified manager thing can get hosed up there is your manager moves. Oh, yay. We're all able to work remotely. I'm going to move from California to Montana. I always like the big sky. Okay. Well, that's great, but you don't live a commutable distance from the office anymore. So, by default, you can't be the qualified manager from home. There are some things that ACA and RMA were very fortunate to lobby with Nevada, which is, for example, if you're a credit and collections compliance officer and you've been certified by ACA or RMAI, or if your agency has been, you can get some relaxing of some of these testing or other requirements. But it's important to understand that somebody can't just pick up and move who holds one of these responsibilities and even your home address is in your MU2. So if you change that, you have to update that filing. So these are all little trippy things that can get you into trouble. And I guess if I could just pivot for a second and talk about what happens when you do get in trouble.

Leslie Bender42:34

The other time this can happen is during a merger and acquisition. All of a sudden you've sold your company or you're about to ink the deal and you're really excited and you find out that three of your licenses aren't transferable because you didn't structure the transaction in a way for the licenses to be transferable. Well, it's an understandable mistake. The best thing to do is to get in a conversation straight away with a regulator and maybe what you have to do is sign a consent order where they give you some grace period to operate with a lot of controls and potentially reporting to them, but at least you can keep operating. Or you could have a consent order where you have to pay a fee or fine. You know, there are a lot of things the states can move really fast, unlike the FTC and the CFPB where there are a lot of levels of approval and things like that.

Leslie Bender43:31

Fear the states moving fast because they can enjoin you. They can do different things. You know they have many tools in their arsenal. We have a bunch of questions stacking up in the chat. So, how about if I lob them over to you, Christie, and you efficiently answer them. First, can a California agency B2B collect from Arizona? I think the answer there is pretty clear. If you have an office in Arizona, and by the way, Arizona is a tricky state. It's a state that requires you to have a unique license for every trade name you use. Remember, if you are ever on Who Wants to be a Millionaire and you have any questions about licensing, you can phone Christie or me. We will be your friend. But if you are collecting from Arizona and you're a California company, you need an Arizona license. You are W2 employees working from Arizona. It sounds to me like you could very well need an Arizona license, not just a California license. And Christie probably remembers a few years ago, and by a few I mean it could be sometime in the last decade, a lot of companies relocated across the Nevada border from California because there were a lot of human resources laws and regulations that made it a lot less expensive to employ people in Nevada than in California. It may also be less expensive, I don't know, in Arizona than California. I don't know. But if you have business, you are conducting and you have employees and you have an office in Arizona, you probably need an Arizona license.

Leslie Bender45:30

But that would be something to check out. What do you think, Christie?

45:34

Yeah, absolutely. And, you know, licenses aren't obtainable quick, unfortunately. So, if you decide, oh, I you figure you find out I need this, you're not going to get an Arizona license for three months. So, you got to think about that, too, when you're looking at licensing. It just takes processing time with the states that are out of everyone's control. So, that can make a little more stress on your plate there when you figure that out. And some of the states do zany things like they non-object, but they keep an eye on you. Like, absolutely. Some of the states won't approve something. So, if you're inking a merger and acquisition deal and one of your covenants is you have to provide proof of regulator consents, be aware that some non-object, but they don't consent.

Leslie Bender46:22

So, you want to structure that fee structure. Is the fee structure required in a business plan referring to borrower fees or servicing client? I know some regulators ask you your commission structure when they examine you. I'm not sure how you would answer that question, Christie. It would depend on what state we were talking about. I mean, they can all have their own little nuances of what they want to see in there. Usually the checklist or stuff that we can provide breaks it down what they want to see, but the business plan that you submit to Nevada may not be exactly what Arizona would want. So, you have to look at where you're doing the activity. Yep. Here's a good one for you. Any insight on licensing requirements in Guam beyond corporate registration? I think we should all go there to find out because it's supposed to be really beautiful there and I've always wanted to go. I mean, just take a trip to Hawaii, talk to them about their 60-day notice requirements, and then just keep on going to Guam. That's my vote.

47:33

Yep. I like the way you think. Let's do that. Guam, you do have a registration and then there's a business license that may be required. It's just pretty expensive, just to be honest. The filing fees are quite extensive. The agent fees are pretty expensive as well. But there are requirements to look at in Guam both at a corporate level as well as the business license level. Besides the list provided, are there some licenses that can be used across state lines? All licenses can be used across state lines. The thing though is that if I procure a license and I just had this question in a merger and acquisition last week that somebody mistakenly thought that if they had a license in one state that meant that they could collect in every state if you are there are different trip wires in the different states. Do you have an office there? Do you have creditor clients you collect for there? Like let me pick Nebraska. We haven't picked on them at all. Christie, Nebraska, sure.

Leslie Bender48:40

Nebraska used to have an outright exemption. They don't have it anymore. Their exemption only exists now if you are collecting in Nebraska from somebody that perhaps incurred their debt in another state and now has moved to Nebraska or lives in Nebraska but incurred the debt elsewhere. But if you have Nebraska creditor clients, no matter where the people live, you need a Nebraska license. So I think that it's important to understand, you know, like Christie pointed out at the top of the call, some of these states have quirky rules and depending upon the contacts that you have with that state. And by contacts, I mean, do you have an office there? Do you have creditor clients there? Do you have consumers that live there that you regularly are lettering in? Do you have any employees that during the pandemic decided to live there? And you know, so you do have W2 employees in that state. All of those sort of threads are contacts. And the more contacts you have in a state, the more likely it is that you would really need to be licensed there.

49:59

What would you like to say about that, Christie, please?

Leslie Bender50:04

Sorry, our thing changed. Yeah, I mean, absolutely. I mean, you just have to stay familiar with everything. You have to stay on top of everything. That's just my overall advice for everything these days is things change. Stay on top of things. And I find that the regulators, you know, like a good neighbor, are always there. And if you don't know somebody and you're not successful in reaching out and getting a response, which I find to be very rare, even Nevada, you get a response straight away. You know, and they're very distinct. Like Nevada's licensing people are not the examining people. So some of these states that are larger, like some of the states, the collection agency licensing people also license non-bank financial institutions.

Leslie Bender51:05

So they're also licensing loan brokers and mortgage lenders and maybe even some type of fintechs and other types of companies. So they have different personas if they regulate all those people or they're just an all-out consumer protector. So it's important to know that they have differences. The ones that also are financial services licensing people tend to have closer relationships with the state law enforcers and they are more likely to start a consent order civil investigation if they get wind that you may be out of compliance than some of the consumer protection agencies that aren't necessarily dealing with financial institutions all the time. We have a question about Wisconsin. Wisconsin is a notable state because Wisconsin's regulator is super industry friendly, very approachable, very accessible, you know, a real standout in being friendly and, you know, helpful. So, where is their agency license application and when will it be available? I don't know the answer to that.

Leslie Bender52:32

That is, one of the last states to jump towards the NMLS. Sometime between January and I think May is when that transition will occur. And so, you're probably not going to find a whole lot on it right now other than it's coming. And, of course, that's another thing that we're watching. And so if you subscribe to our newsletter, you're going to start seeing that topic if it's not already in there. You're going to start seeing that when more information is released by the state. This is great. 45 minutes has flown by into 55 minutes very quickly and we thank you very much for the questions to everybody and thank you both Christie and Leslie for the thoughtful insight. Is there anything that either one of you want to kind of sum up this conversation with as it as people are just thinking about their either existing licensing or whether to pursue a new license? Well, first of all, I'm super grateful to Cornerstone for the chance to nerd out on things that I love about state law and state regulators. And I hope that folks feel like you know I am approachable, Cornerstone is approachable, you know if they don't know the answer, if I don't know the answer, we are more than happy to ferret it out.

Leslie Bender53:58

But rather than fretting and rather than running the risk that something you're contemplating could trip a trip wire, you know, I hope you have the sense that, you know, myself, I'll let Christie speak for Cornerstone. We're certainly approachable and we'd also love to hear your stories. Like if you've approached so and so, you know, like a couple years ago, Minnesota completely undid its exemption from licensing program with very little advanced notice and just went out and started finding people that they thought should have licenses. Like it would be great if we knew about stories like that people were having when they first start happening. Because then either we can get ahead of them by reaching out to the regulators, asking why they had a sea change, help getting their help in navigating that. So keeping the lines of communication open, you know, I think we're all happy. I'm happy to share what I might know with Cornerstone.

55:08

They share with me, you share with us and I think then we can put together some helpful information about you know that can either give us an opportunity to lobby some of these licensing regulators or at least share an interpretation of what has happened. So, thank you to Cornerstone. I'm truly honored to have the chance to work with you guys and I know my clients have benefited a lot from working with you. Thank you, Leslie. Goes both ways. Christie, anything that you would close with? Yeah, we appreciate you so much Leslie. Yeah, just, you know, our goal and our desire is to keep you apprised of changes that are coming down the pike. You know get our newsletter, ask specialist questions. You know our contact information is here. We are always open to answering questions and sharing what we may know or you may tell us something that we haven't heard and that we can you know go and obtain more information on and share with the industry. So I think this is a great first webinar for cornerstone. And I hope there will be many more. And Joel, great job kind of keeping us on track here and answering the right questions. And Leslie too, we appreciate you. Yeah, thanks. So the presentation is available in the chat. So I've already seen several of you download it. So grab that. You know, ask questions afterwards.

56:37

Obviously the contact information for Christy and Leslie is going to be in there. So please don't hesitate to reach out. We will be having more webinars very soon and we really hope that you will join us. We'll have more information on those in the weeks to come. But on behalf of Leslie and Christie thank you very much for attending today and we hope you have a great rest of November, a great Thanksgiving and we'll be talking very soon. Thanks everyone. Thanks everyone. Thank you everybody.