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How To Buy Debt For Collection


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How To Buy Debt For Collection


As debt buyers, Encore and Portfolio Recovery Associates purchase delinquent or charged-off accounts for a fraction of the value of the debt. Although they pay only pennies on the dollar for the debt, they may attempt to collect the full amount claimed by the original lender. Together, these two companies have purchased the rights to collect over $200 billion in defaulted consumer debts on credit cards, phone bills, and other accounts.


The CFPB found that Encore and Portfolio Recovery Associates attempted to collect debts that they knew, or should have known, were inaccurate or could not legally be enforced based on contractual disclaimers, past practices of debt sellers, or consumer disputes. The companies also filed lawsuits against consumers without having the intent to prove many of the debts, winning the vast majority of the lawsuits by default when consumers failed to defend themselves. These practices violated the Fair Debt Collection Practices Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act.


Encore and Portfolio Recovery Associates illegally attempted to collect debt that they knew, or should have known, may have been inaccurate or unenforceable. Specifically, the CFPB found that the companies:


The Department of Financial Protection and Innovation (DFPI) provides licensure, regulation, and oversight of California debt collection practices under the California Consumer Financial Protection Law, 2021 (CCFPL) and the Debt Collection Licensing Act, 2022 (DCLA). Both measures help to better protect consumers and create a level playing field for industry. The DFPI began accepting applications for licensure September 1, 2021. You can reach the licensing team by emailing DCLA.Inquiries@dfpi.ca.gov . We can answer questions regarding the licensing process but cannot provide legal advice. Applications must be submitted via the Nationwide Multistate Licensing System & Registry (NMLS). A checklist of requirements for the application is available on NMLS. Once licensed, debt collectors will not need to register under the California Consumer Financial Protection Law. The Department will allow any debt collector that submitted an application before January 1, 2023, to operate pending the approval or denial of the application.


There are exemptions for depository institutions such as FDIC-insured banks, credit unions, DFPI-licensed finance lenders and brokers, DFPI-licensed mortgage lenders and servicers, Department of Real Estate licensed agents, persons subject to the Karnette Rental-Purchase Act, a trustee for a nonjudicial foreclosure, and debt collections regulated under the Student Loan Servicing Act.


You may apply for a single license that includes all your affiliates engaged in the business of debt collection and pay a single application fee of $350. However, each affiliate will still need to pay the investigation fee of $150 and complete a New Company application (Form MU1).


Per legislation, all debt collectors needed to apply for a license prior to January 1, 2023, to continue to operate in California. That means we will have a large volume of applications to review. The licensing team is diligently working to review them as quickly as possible; however, the process is anticipated to take place through 2023. Do not be concerned if we do not contact you regarding your application for an extended period of time.


The Commissioner may issue a desist and refrain order to keep a company or individual from engaging in the business as a debt collector without a license or from violating the DCLA or the Rosenthal Fair Debt Collections Practices Act or Civ. Code 1788.50 et seq. The Commissioner may also order the person or licensee to pay ancillary relief, including but not limited to refunds, restitution, disgorgement, and payment of damages on behalf of a person injured by the conduct or practices constituting the violation.


Under the CCFPL, it is unlawful for a covered p




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