California DFPI Faces Lawsuit Over Debt Collection Licensing Fees

California’s DFPI was hit on April 7, 2026, with a putative class action in San Francisco Superior Court challenging how it assesses annual licensing fees on debt collectors under the Debt Collection Licensing Act (DCLA). The suit attacks the 2025 assessment regime as an unlawful “tax,” procedurally defective, and economically distortive, and seeks refunds and prospective relief on behalf of roughly 1,243 licensees.

Who sued and what they’re targeting

On April 7, 2026, two debt collection trade associations and one licensed debt collector filed a petition/class action against the DFPI in California Superior Court (County of San Francisco). The proposed class is about 1,243 licensed debt collectors statewide, i.e., essentially the current DCLA licensee universe.

The challenge is focused on DFPI’s annual assessments for fiscal year 2025, not the one‑time $350 application and $150 investigation fees that remain on the books. Petitioners allege the 2025 assessment formula is unlawful on its face and as applied, and they are seeking to recover “millions of dollars” in allegedly excess charges.

Core allegations about the fee formula

Petitioners’ theory is that DFPI’s regime crosses the line from fee to tax and fails multiple statutory guardrails.

Key points:

• Overbuilt budget and fee level: DFPI allegedly built a DCLA program budget assuming more than 7,000 licensees, but only about 1,200 actually obtained licenses. Petitioners say DFPI never right-sized the budget to the real market and instead spread the full $10.2 million 2025 program cost across the ~1,243 licensees.

• Metric based on “ability to pay”: Assessments are allocated based on each licensee’s “net proceeds” (a revenue/profit proxy), which the petitioners characterize as a measure of ability to pay, not regulatory burden. They argue this violates Proposition 26’s requirement that regulatory charges be tied to the reasonable cost of regulation attributable to that payer.

• Uncapped and unpredictable: Petitioners highlight that, unlike many states with fixed or capped license fees, California’s revenue‑based, uncapped assessments are volatile and difficult to predict. They assert that some collectors have already withdrawn from California because of these assessments.

• Comparable‑state argument: The complaint asserts DFPI’s charges are “materially higher” than licensing fees in other states for similar activities, reinforcing the claim that they exceed reasonable regulatory costs.

An example in the pleadings: petitioners say DFPI first set a large budget on an assumed 7,000 licensees, then tried to backfill the gap by both charging high assessments to the existing 1,243 licensees and exploring ways to expand who counts as a “debt collector” just to increase the payer base.

Claimed legal violations

Petitioners frame the case on several legal hooks.

1. Proposition 26 (unconstitutional tax)

   • They allege the assessments are “taxes” because they exceed the reasonable cost of regulation and are not fairly related to each licensee’s burden or benefit under the program.

   • Under Prop 26, that would trigger requirements for voter approval or other constraints that DFPI did not meet, making the charges unconstitutional.

2. Debt Collection Licensing Act (DCLA) violation

   • The petition argues the DCLA authorizes cost‑recovery fees, not a revenue‑based tax structure disconnected from actual supervisory cost per licensee.

   • Petitioners say DFPI’s scheme contradicts the statute’s design by using net proceeds as an assessment base and by maintaining a budget for a 7,000‑licensee universe that does not exist.

3. California Administrative Procedure Act (APA)

   • Petitioners allege DFPI failed to clearly disclose the fee‑calculation formula in its regulations and rulemaking materials.

   • They say DFPI referenced the assessment factor only orally at an advisory‑committee meeting and never codified the specific rate formula in text subject to notice‑and‑comment.

4. Due process / procedural defects

   • The complaint claims the lack of a clear, published formula for annual fees deprived licensees of fair notice and an opportunity to comment meaningfully.

   • Relatedly, DFPI allegedly did not “meaningfully” consult the statutorily required Debt Collection Advisory Committee on the fee schedule and mechanics of implementation.

5. Causes of action pleaded
   The petition reportedly includes four primary causes of action:

   • Writ of mandate under Code of Civil Procedure section 1085 (to compel DFPI to comply with Prop 26, DCLA, APA, etc.).

   • Declaratory relief that the assessments violate due process and Proposition 26.

   • Declaratory relief that DFPI’s fee regime violates the APA.

   • Claim for refund of unconstitutional taxes.

Requested relief and practical stakes

Petitioners are seeking both backward‑looking and forward‑looking relief.

• Refunds / monetary relief: The case seeks to recoup potentially “millions of dollars” in 2025 assessments already paid by debt collectors. If the assessment is held an unlawful tax or invalid fee, DFPI could be required to refund a significant portion of the $10.2 million for FY 2025.

• Injunctive and declaratory relief: Petitioners want the court to bar DFPI from using the current assessment formula going forward and to declare the 2025 assessment structure invalid. That would likely force DFPI back to the rulemaking table to redesign its DCLA funding approach.

• Program and market impact: Petitioners argue that the current fee regime is already driving some collectors out of the California market and, if unchecked, will increase the cost of credit for California consumers by making recovery more expensive and narrowing the pool of collection firms.

For licensees, the case directly affects:

• Annual licensing cost predictability and magnitude in California.

• Whether fees will remain revenue‑based versus shift to a more traditional fixed or tiered schedule tied to license type or activity level.

• The potential for retroactive refunds of 2025 assessments if the plaintiffs prevail.

Where things stand now

As of late April 2026, this is a newly filed, putative class action; no merits ruling has been issued. Reporting notes DFPI has not yet publicly detailed any litigation response or proposed changes to the assessment regime in reaction to the suit.