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Debt Collection License (DCL) and Nationwide Multistate Licensing System (NMLS)

By: Angelita Chavez | March 20, 2023

By: Claire Ariete

A debt collection business, if managed well, is lucrative. However, one must first obtain a debt collection license (DCL) in the state where it plans to operate. DCL is a type of license required by many states in the United States of America for individuals and companies that engage in debt collection activities.

Different types of companies engaging in debt collection activities (including but not limited to the following):

  1. Third-party debt collection agencies
  2. Debt buyers
  3. Some law firms specialize in debt collection
  4. BPO (Business Process Outsourcing) companies

Specific requirements for the debt collection license vary from state to state. Moreover, one must not only comply with the applicable state law, but also federal laws and regulations governing debt collection practices. Failure to obtain the necessary debt collection licenses or to comply with applicable regulations can result in fines, penalties, legal liability, and damage to one’s business’ reputation.

Today, several states have adopted the Nationwide Multistate Licensing System (NMLS) to process application and management of debt collection licenses. NMLS provides a centralized system for these entities to apply for and manage their licenses compliance across multiple states.  It determines if debt collection agencies and collectors meet state-specific licensing requirements. By using the NMLS, state regulatory agencies can efficiently manage and monitor the debt collection industry, promoting consumer protection and ensuring that licensed entities operate in a fair and ethical manner.

The following states adopt NMLS for debt collection licenses:

    1. Arizona
    2. California
    3. Connecticut
    4. Idaho
    5. Indiana
    6. Maryland
    7. Massachusetts
    8. Nebraska
    9. Nevada
    10. New Mexico
    11.  North Dakota
    12. Oregon
    13. Rhode Island
    14. Wyoming

Applying for a debt collection license directly to the state or using NMLS, and ensuring its compliance, can be a tedious process and is better handled by professionals

There are numerous advantages in engaging a law firm to handle your debt collection license application and regulatory compliance. These advantages include:

1. Legal Expertise: A law firm has the legal expertise and knowledge to navigate the complex and ever-changing regulatory requirements of debt collection. They can provide guidance and advice on compliance with state and federal laws and regulations.  They are familiar with the intricacies of debt collection, NMLS and can ensure that your application is complete, accurate and compliant.

2. Time Savings: Applying for DCL can be a time-consuming and complicated process. By outsourcing this task to a law firm and leaving the administrative work to the professionals, you can focus more on your core business activities and other important aspects of your business. This can help you save valuable time and resources.

3. Risk Mitigation: Failure to comply with DCL compliance can result in penalties, fines, or even suspension of your license. By working with a law firm, you can help mitigate these risks by ensuring that all necessary licenses are obtained and maintained.

4. Continued Support: A law firm can provide ongoing support and assistance with debt collection licenses and compliance, ensuring that businesses stay on top of these requirements and ensure that your license remains in good standing.

5. Increased Professionalism: Working with a law firm to handle your DCL application and NMLS account can help you project a more professional image to your clients and business partners. It demonstrates that you take regulatory compliance seriously and are committed to upholding high standards in your business practices.

 The experienced attorneys at Chugh, LLP will be happy to guide you through this process so you can be at ease and your debt collection business is handled in the most efficient way.

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