Collector - July 2018 - 18
New York City
Licensing Laws Can Be Tricky
While there's not a statewide debt collection license
requirement in New York, there are city-imposed license
requirements in Buffalo, New York City and Yonkers.
if a licensing exemption applies, debt
collectors may want to contact qualified
legal counsel for guidance.
Once the determination is made that a
license is required, debt collectors must learn
about the state's licensing process. Depending
on state requirements, the licensing process
can range from fairly simple to very complex.
For many years, the state's licensing authority
oversaw the licensing process and received
all the required documentation. However,
recently many states have switched to the
Nationwide Multistate Licensing System
(NMLS) to handle the licensing process.
Whether dealing with a state licensing
agency directly or indirectly through the
NMLS, debt collectors will be required to
submit certain documents as a prerequisite
to acquiring a licensing. These documents
can include a corporate financial
statement, a personal financial statement,
a business plan, an organizational chart
and reference letters.
Often states will require a potential
licensee to submit to a background check,
which may include providing an official
set of fingerprints for the state to keep
on file. Some states will also require the
agency to obtain a bond, the amount of
which varies with state law.
Various licensing fees are also common to
complete the licensing process. Some states
even require the potential licensee to pay for
their background check. State requirements
for documentation and fees vary greatly.
Carefully reviewing a potential state's
licensing laws can avoid unpleasant surprises
during the licensing process.
Another option available to debt collectors
is to engage a third-party service provider
to complete the licensing process for them.
ACA International offers these services; visit
licensing for more details.
Another possible condition of licensure is
obtaining a trust account. A trust account
is a type of bank account used to deposit
collected funds and prevent them from
comingling with the general business
funds of the agency. The laws surrounding
trust accounts tend to focus on
requirements for resident and out-of-state
agencies, account location requirements
and the handling of client funds.
Many states that require a trust account
for resident collection agencies also
expect out-of-state collection agencies to
maintain a trust account as well. State laws
may set specific restrictions on these types
of accounts or provide loose guidelines
for their maintenance. For example,
Maine requires an out-of-state collection
agency to maintain a trust account that
only contains funds collected on behalf
of Maine creditors. While Hawaii's law
instructs that an out-of-state collection
agency maintains an account with a
federally insured financial institution to
hold their clients' funds. Connecticut
takes it a step further and mandates an
out-of-state agency open a trust account
in federally insured bank that maintains a
branch bank in the state.
State laws may also dictate how the
funds in the trust account are handled
and whether or not trust accounts can
bear interest. North Carolina specifies
that trust accounts only be used to send
the proceeds collected to the clients
whom money is due; give the collection
agency any commission owed; reimburse
consumers for overpayments and adjust the
trust account's balance for any bank service
charges. Washington, on the other hand,
allows a collection agency's trust account
to bear interest, which can be periodically
withdrawn as it accrues on the balance.
States may also ask that collectors
maintain an office within the state,
referred to as a resident office. With some
caveats, these laws generally have the effect
of requiring an agency to have a physical
presence in the state.
Each state's laws vary to some degree,
and often only impose the requirement in
certain situations, such as requiring the
resident office for agencies that collect