On October 11, 2024, the California Office of Administrative Law approved and filed with the California Secretary of State proposed regulations by the California Department of Protection and Innovation (“DFPI”) to establish registration and other reporting requirements for certain consumer financial products or services covered under the California Consumer Financial Protection Law (“CCFPL”), including debt settlement. This informational sheet of frequently asked questions is based on these final regulations.
Who is required to be registered under CA’s newly approved regulations?
Any person who engages in the business of offering to provide or providing “subject products” to California (“CA”) residents. “Subject products,” as defined under the regulations, include “debt settlement services,” meaning that all debt settlement services providers, as defined below, are required to be registered with the Commissioner of DFPI.
“Debt settlement services” means either (1) providing advice, or offering to act or acting as an intermediary, including, but not limited to, offering debt negotiation, debt reduction, or debt relief services between a consumer and one or more of the consumer’s creditors in connection with a consumer’s non-mortgage debt, if the primary purpose of that advice or action is to obtain is to obtain settlement for less than the full amount of the debt, or a reduction in the interest rate of payment associated with a consumer’s debts; or (2) advising, encouraging, assisting or counseling a consumer to accumulate funds in an account for future payment of a reduced amount of debt to one or more of the consumer’s creditors. (emphasis added)
Is there an exemption for attorneys?
Currently, there is no listed exemption for attorneys in the language of the approved regulations. If an attorney is in the business of “offering to provide or providing debt settlement services,” as defined above, that attorney must register accordingly.
Are “front-ends” (i.e. debt settlement marketing companies) required to be registered?
The only mention of marketing in the approved regulations is a requirement for applicants to provide a description of how their services are marketed. However, there is a question as to whether front-ends would be required to be registered as debt settlement providers themselves for “providing advice,” as defined above. Such determinations should be made on a case-by-case basis with the assistance of an attorney licensed within the state.
Are payment processors affected by these regulations?
There is no mention of payment processors or payment processing services in the approved regulations.
When do the regulations take effect?
The regulations are scheduled to take effect February 15, 2025.
How do I register?
All registration applications, amendments, notices, related filings, supporting documents, renewals, authorizations, assessments and fees required to be filed with DFPI shall be filed electronically with and transmitted through the Nationwide Multistate Licensing System & Registry (“NMLS”). Any document required to be filed with DFPI that is not permitted to be filed with or cannot be filed with NMLS shall be filed directly with the Commissioner.
What are some of the significant requirements for registration?
Those applying for registration must provide the following information and documentation via NMLS:
- Applicant identifying information (i.e., the entity's name, IRS employee identification number or social security number, legal name amendment, main address – not a P.O. Box, business phone number, toll-free number for consumers, fax line, email address, mailing address, and a statement as to whether the entity conducts business with consumers through branch offices or other business locations;
- Any trade names;
- Resident/Registered Agent information;
- A list of all web addresses used to offer or provide consumer financial products or services to CA residents and indicate whether the applicant transacts business through the websites;
- Books and records information;
- Information on the applicant’s legal status (i.e., the entity's fiscal year end, the date and place the entity obtained its legal status, stock symbol if the entity is publicly traded, and the entity's legal status, e.g., corporation, limited liability company, etc.);
- Information on each entity under common ownership (affiliates) and each entity under the applicant’s control (subsidiaries) that provide consumer financial products or services to CA residents (i.e., the name, address, and description of each affiliate and subsidiary and an organization chart or document describing the relationship and percentage of ownership);
- An applicant shall disclose and provide complete information on its criminal history, regulatory actions, civil actions, and financial history, including complete details where the applicant answers "YES" to any disclosure question;
- Identifying information on direct owners, executive officers, and indirect owners, along with the submission of certain disclosure questions on each listed individual’s criminal history, regulatory actions, civil actions, and financial history. The regulations do not require these individuals to submit a request for a credit report or fingerprints.
- A management chart identifying the following individuals by name and title:
- Directors;
- Principal officers;
- Any manager or other individual primarily responsible for the applicant's offering or provision of a subject product in CA;
- General and managing partners;
- Managing members; and
- Trustees.
- A detailed description of the applicant's business activities relating to the offering or provision of the subject product(s) in CA that includes the following information:
- A description of all products or services offered or provided to CA residents including, but not limited to, subject products;
- A detailed schedule of the charges associated with the products and services provided to CA residents including, but not limited to, subject products. Where charges vary based upon the type of the transaction or other factors, the applicant shall provide a description of how charges are set or determined;
- A description of how the applicant markets to CA residents who may be consumers of subject products, including identifying any websites, social media accounts, and third-party brokers or lead generators that the applicant uses to acquire potential CA consumers for its products or services; and
- Whether the applicant offers or provides subject products to CA residents through a mobile application.
In addition to the information and documentation to be provided via NMLS, an applicant for registration shall, as part of the registration application, submit directly to DFPI the following information:
- Images documenting the standard enrollment or application process CA residents use to request or receive the subject product from the applicant through any mobile applications and websites;
- Any documentation of the standard enrollment or application process CA residents use to request or receive the subject product from the applicant over the phone;
- Any standard enrollment materials or applications the applicant provides to CA residents in connection with the offer or sale of the subject product;
- Copies of representative contracts and disclosures used by the applicant to provide subject products to CA residents;
- A list of addresses of all branch locations, if any, from which the applicant will offer or provide subject products to CA residents;
- The applicant's gross income for the prior calendar year from subject products provided to CA residents. For income-based advances that were provided as part of a bundle of services for which a periodic subscription fee was charged, gross income must include the subscription fees paid to the provider for all periods in which the provider provided an income-based advance to a CA resident; and
- Copies of sample periodic account or activity statements used by the applicant to provide debt settlement services to CA residents, if the applicant provides statements to CA residents.
Are there any annual registration requirements?
Yes, registrants must pay an annual fee (to be assessed on or before November 30th) on or before December 31st of each year. Every registrant registered as of December 31st must also file with the Commissioner by March 15 of each year, beginning on March 15, 2025, an annual report containing the following information. An annual report is required each year even if the registrant did not provide any subject products or did not engage in any activities under the registration in the calendar year.
- The registrant’s gross income for the prior calendar year from subject products provided to CA residents;
- The number of CA residents who had an existing contract for debt settlement services in effect at any time during the prior calendar year;
- For the residents identified, the total number of debts residents contracted for debt settlement services with the registrant;
- For the residents and debts identified, the total dollar amount of debt of all residents who contracted for services with the registrant based on the total debt balances upon execution of the contracts with the registrant;
- For the residents identified, the total dollar amount of charges paid by all residents during their contract terms;
- For the residents identified, the total number of debts for all residents who contracted for services with the registrant in which the resident, over the contract term, has accepted a settlement with a creditor and made at least one payment pursuant to that settlement;
- For the debts identified for which a resident has accepted a settlement at any time with a creditor and made at least one payment pursuant to that settlement, the average amount owed upon execution of the contract with the registrant for the settled debts, and the average settlement amount based upon the total of all payments due for the settled debts under the settlement agreements; and
- For the debts identified for which a resident has accepted a settlement with a creditor and made at least one payment pursuant to that settlement over the contract term, the average amount of time between execution of the contract and the first payment under each settlement.
