On June 26, Minnesota Governor Tim Walz signed into law a bill that expands the regulation of the accounts receivable management industry to include debt buyers and affiliated companies.
Under HF 6, “debt buyers” are defined as businesses “engaged in the purchase of any charged-off account, bill, or other indebtedness for collection purposes, whether the business collects the account, bill, or other indebtedness, hires a third party for collection, or hires an attorney for litigation related to the collection.” Affiliated companies subject to these provisions include those that (1) directly or indirectly control, are controlled by, or are under common control with other companies; (2) have the same executive management teams or owners that exert control over the business operations; (3) maintain a uniform network of corporate and compliance policies and procedures; and (4) do not engage in active debt collection.
Under the amendments, debt buyers are now subject to most of the same provisions as collection agencies and the accounts receivable management industry. Notable provisions include requirements related to licensing, communications with debtors using recorded messages through an automatic dialing announcing device (ADAD), bookkeeping, fee collection, and working from home.
Debt buyers, like collection agencies, must apply for a license with the commissioner of the Department of Commerce by January 1, 2022. Affiliated companies may operate under a single license. A debt buyer that applied for a license prior to January 1, 2022, and whose application remains pending thereafter, may continue to operate without a license until the commissioner approves or denies the application. Failure to apply for and obtain a license while continuing to operate as a debt buyer in the state will result in a misdemeanor. Licensees will be allowed to use a d/b/a registered with the commissioner.
Additionally, debt buyers are now prohibited from communicating with a debtor by use of a recorded message utilizing an ADAD if the debtor expressly informs the collector to cease such communications. The new law eliminates the previous prohibition against “communicat[ion] with a debtor by use of a recorded message utilizing an automatic dialing announcing device unless the recorded message is immediately preceded by a live operator who discloses prior to the message the name of the collection agency and the fact the message intends to solicit payment and the operator obtains the consent of the debtor to hearing the message.”
Debt buyers, like collection agencies, must also preserve books and records in their place of business in Minnesota for five years after final collection of any purchased account. But debt buyers, unlike collection agencies, are not required to keep payments collected from debtors in a separate trust account.
The new laws also allow for collection of certain fees “incidental to the charge-off obligation” so long as the amount is expressly authorized by the agreement with the consumer. The Association of Credit Collection Professionals (ACA International) believes this is the first step toward statutory authorization of convenience fees, which was tabled for the time being.
“Minnesota’s licensing statute is now updated in several ways that will facilitate consumer communications during collections,” said Great Lakes Credit and Collection Association (GLCCA) President Michael Klutho.
Lobbied by ACA International and GLCCA, these laws are aimed to drive the state’s economic recovery post-pandemic. According to Klutho, lobbying during the pandemic afforded GLCCA and ACA International an opportunity to advocate for employees working from home. Employees of collection agencies and debt buyers may now work from a location other than the agency’s or buyer’s place of business until May 31, 2022, and an additional branch license is not required.
The laws go into effect August 1, 2021.