The CFPB Curtails the Activities of an Unlicensed Debt Collector: Striking a Chord Between State Licensing Compliance and the FDCPA

Editor's Note: This article is authored by Joann Needleman, Leslie Bender, and Ann Lemmo of Clark Hill PLC . Joann Needleman and Leslie Bender are members of the iA Legal Advisory Board.

On December 8, 2020, the Consumer Financial Protection Bureau (CFPB) entered into a Consent Order with RAB Performance Recoveries, LLC (RAB) for engaging in debt collection activity without a license in the states of Rhode Island, Connecticut and New Jersey. RAB’s failure to obtain any proper state licensing in those specific states led the CFPB to issue a fine of over $200,000 as well as a permanent order restraining RAB and its principals from ever engaging in a very broad description of debt collection activities. Both state regulators and the CFPB are responsible for regulating debt collection activities and both have a vital interest in the work of the other. However, in this instance, the CPFB acted alone and found that RAB’s conducted not only violated the Fair Debt Collection Practices Act (FDCPA), but their conduct amounted to a UDAAP violation under the Consumer Financial Protection Act of 2010 (CFPA).  

Over time as more modern forms of technology have been introduced in the business of servicing consumer and commercial accounts for others, the lines distinguishing “debt collection” activities subject to state oversight, the FDCPA (and other laws), and the services businesses offer on behalf of creditors regarding receivables have blurred. State regulators have been very cognizant of these activities and used a variety of supervision and enforcement strategies to ensure an entity’s conduct aligns with states’ licensing requirements. State penalties for the failure to obtain a license can be both civil and criminal in nature.   

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It is notable that the CFPB and state regulators have had a Memorandum of Understanding (MOU) in place since May 2013 to coordinate on supervision and enforcement matters regarding these types of action. In this instance, however, the CFPB did not partner with regulators in Rhode Island, New Jersey or Connecticut.   The CFPB’s enforcement action against RAB emphasizes that collecting without a license can also be a violation of the FDCPA because the lack of a license is a false representation or implication that the entity is permitted to conduct debt collection activities in the first place.    

There are other important takeaways that must be considered by entities who provide any services for creditors that involve the collection of money from consumers. First, a title alone does not exempt an entity from licensure; the nature of the services rendered on behalf of the creditor is the qualifier that determines whether the activities fall under a broad interpretation of the phrase “debt collection.” Second, the failure to license can result in significant penalties. In the over ten thousand administrative actions undertaken by state regulators in the past decade for the failure to license, many resulted in a permanent cease and desist, and similar or even remotely-related activity could also be permanently enjoined. 

California and New York will be requiring debt collectors to license in the coming year. Many states have adopted the Nationwide Multistate Licensing System and Registry (NMLS) and will continue to handle applications, renewals and other debt collection oversight activities through this system and registry. Meanwhile, in response to the CFPB’s proposed Regulation F, state regulators urged the CFPB to encourage debt collectors, as part of their FDCPA compliance, to list their NMLS or licensing information in written communications such as collection notices sent to consumers — suggesting that the dovetailing of state licensing and FDCPA compliance is important to both state and federal regulators.