The spring season has brought with it amendments and proposed
changes to collection agency licensing provisions, as state
legislatures engaged in some “spring cleaning” to clarify
and modernize existing laws. Amendments passed in Utah and Wyoming,
and important proposed changes in Nevada, reflect a trend to bring
collection agency licensing laws up to date with market practice,
or repeal outdated, inconsistent, or duplicative laws. Below, we
provide a primer on enacted or proposed collection agency licensing
changes in these three jurisdictions.
Utah
On March 13, 2023, the Utah legislature enacted amendments to
the Utah Collection Agency Act through House Bill 20. House Bill 20 repeals most of the Collection
Agency Act, including the requirement for a collection agency to
register with the Utah Department of Commerce. House Bill 20 leaves
in place the section of the Collection Agency Act that authorized
the imposition of a “convenience fee” in certain
circumstances. The previous version of the Collection Agency Act
was extremely broad in scope, and potentially covered not only true
collection agencies but also servicers of consumer and commercial
debts and, according to courts in Utah, debt buyers taking
assignment of delinquent or defaulted contracts for the purpose of
collecting on them. With the enactment of House Bill 20, these
companies will now have greater regulatory certainty when operating
in Utah.
House Bill 20 takes effect on May 3, 2023. The bill’s
sponsor noted that there currently are an estimated 112 companies
registered as collection agencies in Utah. Going forward, these
companies may, depending on their activities, be required to file a
notification under the Utah Consumer Credit Code or Utah Mortgage
Financing Regulation Act, but as of May 3 they will no longer be
required to register with the Department of Commerce.
Wyoming
The number of states that require a license to act as a
“debt buyer”—which generally refers to a person who
acquires delinquent, defaulted, or charged-off debt in the
secondary market and contracts out all direct collection activities
and consumer contact to other licensed collection agencies or
attorneys—has significantly increased over the last decade.
In February 2023, Wyoming became the latest state to amend its
collection agency laws to specifically require a license to engage
in business as a debt buyer.
On February 27, 2023, the Wyoming legislature approved House Bill 284, which has been signed into law
by Governor Mark Gordon. House Bill 284 amends the definition of a
“collection agency” to specifically include a person who
operates as a “debt buyer,” which the bill defines as
“any person that is regularly engaged in the business of
purchasing charged-off consumer debt for collection purposes,
whether the person collects the debt, hires a third party for
collection of the debt or hires an attorney for collection
litigation[.]” While the Collection Agencies Act currently
states that a person acts as a “collection agency” when
they “take[ ] assignment of debts for the purpose of
collecting such debts,” there was some ambiguity as to whether
an entity that purchased debts, but contracted with another
licensed collection agency or law firm to collect debts on the debt
buyer’s behalf, were subject to licensing as a “collection
agency” under the statute. House Bill 284 eliminates this
ambiguity, and clarifies that persons operating as “debt
buyers” in Wyoming with respect to charged-off consumer debts
must obtain a license once the law takes effect on July 1,
2023.
Nevada
Nevada licenses and regulates the activities of “collection
agencies” through its Collection Agencies Act. The Collection
Agencies Act defines a person who acts as a “collection
agency,” and therefore becomes subject to the licensing and
regulatory requirements of the law, as any person “engaging,
directly or indirectly, and as a primary or a secondary object,
business or pursuit, in the collection of or in soliciting or
obtaining in any manner the payment of a claim owed or due or
asserted to be owed or due to another.” Nev. Rev. Stat. §
649.020(1). Despite the very broad definition of the activities
that constitute acting as a “collection agency,” the
Collection Agencies Act does not contain many of the typical
exemptions seen in other state collection agency laws, such as for
the collection of mortgage debt, persons who began to service a
debt prior to default, or original creditors servicing debts they
have sold in the secondary market.
The scope of the Collection Agencies Act could change if recent
legislation, namely Senate Bill 276, which was introduced on March
14, 2023, were to pass. Among other items, Senate Bill 276 would
amend the Collection Agencies Act to adopt new exemptions that have
the potential to reduce regulatory burdens on loan servicers
operating in Nevada. Senate Bill 276 would create exemptions from
collection agency licensing for the following:
- Mortgage servicers that are licensed under the Nevada Mortgage
Servicers Act, if the servicer obtained servicing of the loan prior
to default; - Original creditors collecting a debt in their own name;
- Persons collecting a debt that they originated and then sold,
and - Any person acting as a debt collector for its affiliate, if the
person does not collect for anyone other than affiliates and the
person’s principal business is not debt collection.
In addition to adopting exemptions that align more closely with
those typically provided under other state collection agency laws,
the bill would, if adopted, streamline the Collection Agencies Act
by repealing provisions that set forth additional activities that
constitute licensable collection agency activity, and simplify the
jurisdictional prerequisites for when a person acts as a collection
agency in Nevada. Specifically, under Senate Bill 276, a person
would act as a collection agency in Nevada, for purposes of the
licensing requirement, if (i) the person is located in Nevada and
seeks to collect a debt, regardless of where the debtor resides;
(ii) the person is located in another state and seeks to collect a
debt from a debtor who resides in Nevada, or (iii) the person is
located in another state and is seeking to collect a debt on behalf
of a person who resides in Nevada. The bill would also eliminate
the requirement for a licensed collection agency to obtain a
separate branch license for each alternate location.
If enacted, and following the previously mentioned trend
regarding requiring debt buyers to be licensed, Senate Bill 276
would also clarify that debt buyers are subject to licensing under
the Collection Agencies Act. A “debt buyer” is defined
under the bill as a person who “is regularly engaged in the
business of purchasing claims that have been charged off for the
purpose of collecting such claims, including, without limitation,
by personally collecting claims, hiring a third party to collect
claims or hiring an attorney to engage in litigation for the
purpose of collecting claims.”
Senate Bill 276 has been referred to the Nevada Senate Commerce
and Labor Committee. Companies servicing debts in Nevada should
continue to monitor the bill’s status.
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