California expands licensing rules for out-of-state debt settlement firms
California AB 2524 broadened the state’s Proraters Law to cover out-of-state debt settlement providers doing business in California.
California expanded its Proraters Law in October 2020 to require debt settlement providers that are not domiciled in the state to be licensed by the Department of Financial Protection and Innovation and comply with the law’s substantive requirements, according to a Consumer Finance Monitor article published Oct. 27, 2020.
The earlier version of the law limited licensing to companies organized under California law. The article said that left the state overseeing only a small number of California-incorporated firms, while many other debt settlement companies doing business in California were outside the licensing net.
Gov. Gavin Newsom signed AB 2524 as part of a group of consumer protection bills, the article said. It described the measure as a narrower version of an earlier assembly bill. The earlier proposal would have created a broader regulatory scheme for debt settlement companies through amendments to the Check Sellers, Bill Payers and Proraters Law, but only the licensing change remained in the final law.
The Proraters Law, enacted in 1951, covers people or corporations engaged in selling checks, drafts or money orders, or in receiving money as an agent to pay bills, invoices or accounts, the article said. Under the law, licensed firms must meet requirements that can include payment of a licensing fee, background checks for certain personnel, posting a bond, filing audited financial statements, following advertising restrictions and limits on prorater origination fees.
The article also said entities licensed under the Proraters Law are exempt from the California Consumer Financial Protection Law, including most UDAAP provisions, a reference to state prohibitions on unfair, deceptive or abusive acts or practices. By removing the California-domicile requirement, the law extends licensing obligations to all debt settlement companies doing business in California, including those based elsewhere.
The article said the impact of the law remained to be seen. It did not provide a timeline for additional rulemaking or enforcement steps, and no further official response was included in the source brief.
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Editorial note: This article was prepared with AI assistance and includes source attribution for reader review.
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