Debt Collectors Sue California DFPI Over Licensing Fees

Two debt collection trade associations and at least one individual debt collector have filed a putative class action in San Francisco Superior Court against the California Department of Financial Protection and Innovation (DFPI), challenging the agency’s annual licensing fee structure under the Debt Collection Licensing Act (DCLA).

Key points:

• Who sued / proposed class size
  The named petitioners are two industry trade groups plus a licensed debt collector, bringing the case on behalf of a proposed class of roughly 1,243 licensed debt collectors in California.

• Core allegation: fees are unlawful “taxes” under Prop 26
  The suit claims DFPI’s annual assessments are actually unconstitutional taxes because they exceed the reasonable cost of regulation and are not fairly related to each licensee’s regulatory burden, in violation of Proposition 26.

• Budgeting based on 7,000 licensees vs. ~1,200 actual
  Petitioners allege DFPI “grossly overestimated” the number of debt collectors that would be licensed, budgeting for more than 7,000 licensees even though only about 1,200 applied, and that DFPI failed to adjust its budget once the actual market size was known.

• $10.2 million in FY 2025 assessments; revenue-based formula
  According to the petition, DFPI assessed about $10.2 million in fees for FY 2025 and allocated those costs based on each licensee’s net proceeds, which petitioners characterize as a measure of ability to pay rather than regulatory burden.
  They contrast this with other states’ fixed or capped licensing fees and argue California’s uncapped, revenue-based model is unpredictable and disproportionate.

• Alleged economic and market impacts
  Petitioners contend the fee structure has already pushed some licensees to withdraw from California and will ultimately raise the cost of credit and harm the state’s economy.

• Process and rulemaking challenges
  The suit alleges DFPI failed to meaningfully consult the DCLA’s advisory committee on the fee formula and did not disclose the core assessment-rate factor in formal rulemaking, even if it was discussed orally at a committee meeting.
  They also point to DFPI proposals to broaden who must be licensed, arguing this is meant to justify an “unreasonably large” budget rather than align costs with the actual regulated market.

• Causes of action
  The petition asserts four causes of action:

  1. Writ of mandate under Cal. Code Civ. Proc. § 1085,

  2. Declaratory relief for due process violations and violations of Proposition 26,

  3. Declaratory relief under the Administrative Procedure Act, and

  4. Refund of allegedly unconstitutional taxes.

• Statutory background
  The DCLA (SB 908) requires debt collectors to be licensed and to pay their “pro rata share of all costs and expenses reasonably incurred in the administration” of the program, as estimated by the Commissioner.
  DFPI guidance explains that failure to pay the annual assessment by January 1 can result in summary suspension or revocation of a debt collection license, plus penalties.