CA Regulatory Alert: DFPI Proposes Registration Requirements for the Debt Settlement Industry 

On March 14, 2024, the California Department of Financial Protection and Innovation (“DFPI”) filed a proposed rulemaking with the California Office of Administrative Law (“OAL”) that will require debt settlement providers, among others, to be registered under the recently enacted California Consumer Financial Protection Law (“CCFPL”). The proposed rulemaking has been submitted to OAL as a “regular” rulemaking, meaning the regular rulemaking process must be complied with for the rulemaking action. The regular rulemaking process includes comprehensive public notice and comment requirements. It also requires that documents and information on which the rulemaking action is based are available for review and inspection.  Once this process is complete, OAL will then either approve the rulemaking action and file the proposed regulation with the Secretary of State or disapprove the rulemaking action. 

Under the proposed rulemaking, debt settlement providers will be required to register with DFPI prior to engaging in the business of offering to provide or providing debt settlement services to California residents. It is important to note that no attorney exemption is listed within the proposed rulemaking.

Once implemented, registration is to be applied for via the Nationwide Mortgage Licensing System (“NMLS”) with an application fee of $350.00 per applicant and an annual renewal fee of $100.00. Application requirements include providing company identifying information, contact employees, books and records information, legal status, affiliates/subsidiaries, disclosure questions, direct owner(s), executive officer(s), and indirect owner(s) information – these individuals will also be required to complete individual forms where they will need to provide additional information and answer disclosure questions, management chart, and a description of the business.

Additionally, as part of the registration application, debt settlement service providers will be required to submit directly to DFPI copies of sample periodic account or activity statements used by the applicant to provide debt settlement services to California residents if the applicant provides statements to California residents.

Should OAL approve this rulemaking action, generally, the regulations will become effective on one of four quarterly dates based on when the final regulations are filed with the Secretary of State: January 1, if filed between September 1 and November 30; April 1, if filed between December 1 and February 29; July 1, if filed between March 1 and May 31; and October 1, if filed between June 1 and August 31. We will continue to monitor this newly proposed rulemaking and update you on its adoption. 

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