Debt Collectors Challenge California Over High Licensing Fees
ACA International, a trade association representing credit and collection businesses, has initiated a legal battle against California’s financial regulator, alleging that the fees charged for debt collector licenses are exorbitantly high. The group has filed a proposed class action against the California Department of Financial Protection and Innovation (DFPI) to stop the enforcement of these fees and to mandate refunds for those paid so far.
The association argues that these fees, implemented in 2025 as part of California’s Debt Collection Licensing Act, are unlawfully high. The act was enacted in 2020 to foster a well-regulated credit ecosystem across the state. However, the ACA believes that the fees charged by the agency are disproportionate and are a guise for taxes, which are used to bolster the regulator’s budget.
Details of the Licensing Fees
As per the licensing law, licensees have to pay a proportional share of the operational costs and expenses of the DFPI, as estimated by the commissioner. Each licensee is required to pay a minimum annual fee of $250 per license. However, the actual fees charged by the DFPI in the previous year ranged from $250 to $1.4 million, according to the ACA’s complaint.
Approximately 60% of licensees paid fees under $1,000, about 30% paid between $1,000 and $10,000, and around 10% had to shell out more than $10,000. The ACA also noted that nearly 18 licensees were assessed six- or seven-figure fees. The formula used by the regulator to calculate these fees has been criticized for its lack of transparency.
Impact on Debt Collection Businesses
The ACA alleges that the DFPI overestimated the number of regulated debt collectors in California, which led to unreasonably high fees. The regulator counted over 7,000 debt-collection licensees when designing its budget, but only about 1,200 firms actually applied for licenses.
This miscalculation has had a severe impact on the industry. According to the complaint filed by the ACA, some debt collection businesses have had to withdraw from California or sell or return portfolios of Californian debt. Some have even paid the fees under protest. The ACA warns that these illegal licensing fees will raise the cost of credit in California, reduce its availability, and negatively impact the state’s economy.
Government Response
In response to these developments, California Gov. Gavin Newsom proposed in his 2026-27 state budget that the DFPI would need about $13.5 million annually for the next three years to fund debt collector licensing and regulation. The Legislative Analyst’s Office, a nonpartisan state government agency, suggested that increasing regulatory fees is a fair approach to funding budget shortfalls.
However, it also noted that while some of DFPI’s fees seemed reasonable, others seemed relatively high, such as those for the franchise, mortgage lending, and escrow industries. The office recommended that the legislature ask the DFPI to provide information about its funding plans, including disclosing the amount of revenue it has collected and expects to collect in connection with debt collector oversight.
In the face of ongoing litigation, the DFPI has declined to comment on the matter. With the suit filed in state court, it now remains to be seen how this legal battle will unfold and what its implications will be for the future of debt collection in California.
Source: American Banker
