- Key insight: A trade group representing debt collectors is seeking to claw back licensing fees that California's financial regulator collected last year.
- Supporting data: The California Department of Financial Protection and Innovation will need about $13.5 million annually for the next three years to fund the continuation of debt collector licensing and regulation, according to the governor's budget.
- What's at stake: The DFPI was created in 2020 to emulate, at a state level, the Consumer Financial Protection Bureau. The debt collection licensing fees went into effect in 2025.
A group representing debt collectors has launched a legal battle against California financial regulators over what it claims to be unreasonably expensive licensing fees.
ACA International, the trade association for credit and collection businesses, filed a proposed class action against the California Department of Financial Protection and Innovation over the fees. The plaintiffs are seeking injunctive relief to stop the enforcement of the fees and to mandate refunds of those paid to date.
ACA argues that the fees, which took effect last year as part of California's Debt Collection Licensing Act enacted in 2020, are unlawfully high and part of an effort by the agency to cover its budget. ACA CEO Scott Purcell said in a prepared statement that the trade group is in favor of a well-regulated credit ecosystem, but that the California fees go beyond the reasonable cost of regulation.
"We will not stand by while a state agency ignores its own advisory committee and operates outside the law to fund an inflated budget through disproportionate, unconstitutional taxes disguised as licensing fees," Purcell said.
The Department of Financial Protection and Innovation, or DFPI, declined to comment, citing active litigation.
The DFPI, which was created in 2020 to resemble the now-defanged Consumer Financial Protection Bureau, says on its website that the licensing law is designed "to help better protect consumers and create a level playing field for the industry."
The agency monitors and examines debt collection companies, enforcing violations of unlawful, unfair, deceptive or abusive practices.
Licensees must pay a proportional share of the costs and expenses incurred for the administration of the DFPI, as estimated by the commissioner. The law states that each licensee must pay a minimum annual fee of $250 per license, with a maximum of the "aggregate of all reasonable costs to operate this division, with the exception of fees associated with investigations and examinations."
According to the complaint, DFPI licensing fee assessments last year ranged from $250 to $1.4 million. About 60% of licensees had fees under $1,000; about 30% had fees between $1,000 and $10,000; and about 10% had to pay more than $10,000, per the suit. The ACA added that some 18 licensees were assessed six- or seven-figure fees. But "the formula used to calculate them remained opaque," the group said in the suit.
ACA claims that the DFPI "grossly overestimated" the number of regulated debt collectors in the Golden State, making its budget, and thus the fees it collects, unreasonable. DFPI estimated over 7,000 debt-collection licensees when designing its budget, but only around 1,200 firms actually applied, per the ACA's complaint.
The trade group said that the licensing fees have severely hamstrung industry participants. Some debt collection businesses have had to withdraw from California, or sell or return portfolios of California debt, according to the complaint. Some have paid the fees under protest, per ACA.
"By reducing the number of businesses willing to help Californians collect debts and raising their costs to do so, illegal licensing fees will raise the cost of credit in California, reduce its availability, and harm the state's economy and all who depend on it," ACA said in the suit, which was filed in state court.
California Gov. Gavin Newsom's 2026-27 state budget proposal estimated in January that the DFPI needs about $13.5 million annually for the next three years to fund the continuation of debt collector licensing and regulation.
The Legislative Analyst's Office, a nonpartisan state government agency that provides fiscal and policy advice to the California legislature, said in a November report about DFPI that increasing regulatory fees is a fair approach to funding budget shortfalls.
"Consistent with this principle, it is reasonable for the department to meet its revenue challenge by increasing fees on the regulated community rather than requesting support from an alternative source such as the general fund," the Legislative Analyst's Office said in its report.
But, the office added, 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 direct the DFPI to provide information about plans to fund its programs, including disclosing the amount of revenue it has collected and expects to collect in connection with debt collector oversight.
