50-State Financial Services Licensing Compliance Guide
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Debt Collection Agency License

Debt collection agencies need licenses to provide services. Collection agency license requirements vary by state and by the services offered.

Debt collector agencies are third-party businesses that work on behalf of other companies to collect debts. When debt collectors work for original creditors, the creditor pays the debt collector a percentage of the debt collected. In some other cases, debt collectors buy out the original debt from the original creditor and attempt to seek funds from the debtor. The types of debts that collection agencies pursue include the following:

  • Medical debt
  • Personal loan debt
  • Auto loan debt
  • Student loan debt
  • Unpaid utility and phone bills

Debt collection licensing is not just for traditional debt collection business activities. Other activities that require this license type include:

  • Collecting payments for another that are not past due
  • Collecting commercial debts
  • Soliciting claims owed or due to another party

Some states even require collection licenses for loan servicers that enforce the terms of loans and consumer contracts.

Collection Agency License Process

Debt collection agency licensing is unique from other types of finance licenses. Not only are there state-level requirements, but some cities have licensing regulations as well. Before commencing the application process, it is essential to know what to expect.

There are certain documents you will need to have in order when applying for a debt collection license. The most common supporting documents include:

  • Articles of formation
  • Certificates of good standing
  • Corporate financial statements

If you are looking to obtain licensure in multiple states, note that every state maintains its own list of required documents. More items could be needed than what is listed above. In terms of process length, the time for each state licensing process varies. Some states require the passing of an examination before a license is issued. No two licensing applications are the same, but most take 120 to 180 days to receive. Businesses also need to pay applicable license fees.

While the documents above are likely ones you already possess, there are others you need to obtain from the state in which you are registering. A certificate of authority qualifies businesses to conduct debt collection activities. It is obtained at the secretary of state level. You may also need to get a collection agency bond. This is a type of surety bond. Some states require this document, as it is a promise on behalf of the company to follow the rules and regulations of its professional license. The bond is used if an agency collects debts but fails to remit appropriate funds.

In addition to obtaining the proper documentation, you also need to assign a registered agent or agent of record to your business. A registered agent is responsible for receiving important legal and tax information. This could include litigation, annual report forms, franchise tax forms, and more. Agencies are required to maintain a registered agent in all states in which they are licensed to operate.

Understanding State Requirements

As mentioned, licensing requirements differ across state lines. States are deemed either regulated or unregulated. If a state has its own regulatory agency that handles licensing, businesses must obtain specific licensing. When a state is unregulated, collection agency companies must register to do business in the state, but they are not required to obtain a separate, specialized collection license. Note that even if a state does not have an independent regulatory agency, there are likely still collection laws agencies need to follow. Agencies must also abide by applicable federal laws.

Certain states also require collection agencies to maintain a physical office in their state. The purpose of the office is to serve debtors who choose to provide payment in person. Agencies need to have a principal contact for the state licensing division where physical offices are required. That person is referred to as the “resident manager.”

In some states, debt collection agency employees are required to obtain individual licenses. However, that is not common practice. The Harbor Compliance licensing professionals can explain your state’s requirements.

State Exemptions

Some states provide statutory exemptions regarding debt collection agency licensing. Exemptions may be given for the following businesses:

  • Out-of-state agencies - entities that do not maintain a physical presence in the state or are only collecting debts via interstate communication for a creditor that is also not in the state
  • Commercial business - entities that collect 100% business-to-business debt
  • Debt buyer - entities that purchase charged-off accounts that they are attempting to collect
  • Collection attorney/law firm - attorneys or law firms licensed to collect debts

Maintenance and Renewal

In addition to initially obtaining a collection agency license, renewals are required. State regulatory agencies determine requirements and deadlines for when and how companies must renew. The renewal process is typically required on an annual or biennial basis, though it varies by state. In addition to renewing your license on time, it is also vital to follow requirements in terms of annual reports.

The cost of failing to maintain a debt collection agency license properly is steep. The business may be prohibited from conducting business in that state. There could be fines, as well as civil and even criminal penalties. Note that statutes change regularly. As such, it is imperative to review your licensing scope at least annually to ensure you are meeting all regulatory requirements.

State Licensing Requirements for Debt Collection Agencies

Click on the link below to view licensing information in your state.

Meeting the collection agency license requirements is not always an easy process. Fortunately, Harbor Compliance License Manager helps finance professionals maintain their licenses by automating repetitive tasks like tracking renewals. Through License Manager, you can also access Compliance Core™ - our extensive, proprietary database of nationwide licensing information - to research the requirements for the states in which you work. These tools reduce the time you spend researching state requirements and prepare your organization for success. Contact our licensing experts today to learn more.