Spring Cleaning: Changes to Collection Agency Laws

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changes in Nevada, reflect a trend to bring collection agency licensing laws up to date with market practice, or repeal outdated, inconsistent, or duplicative laws.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.