Does A California Industrial Bank Require Debt Collection License - Q4 2000By the Division of Banks
An industrial bank licensed by the California Department of Financial Institutions whose deposits are insured by the Federal Deposit Insurance Corporation("FDIC") is engaged in the business of originating commercial and residential real estate loans. The industrial bank has recently begun to service certain mortgage loans which it has originated and subsequently sold to investors. Some of these loans being serviced by the industrial bank have become more than thirty days past due and meet the definition of a "debt" under the Massachusetts collection regulations, 209 CMR 18.00. Based on this analysis, the industrial bank is asks if it is exempt from the requirement of being licensed as a collection agency in the Commonwealth because it is a state chartered bank in California.
Massachusetts General Laws chapter 93, in section 24 prohibits any person from engaging in the business collection agency unless first obtaining a license from the Commissioner of Banks. Section 24 contains a specific exemption from licensing for a state-chartered bank in the Commonwealth, a national banking association having its main office in the Commonwealth and any person whose usual business is not that of a collection agency, who act as agent for such bank or national banking association. The bank's position is that it should be exempted from being licensed as a collection agency under said section 24 because its business is not that of a collection agency and it is only acting as an agent for a bank in collecting payments on mortgage loans which are more than thirty days past due.
Although the usual business of the bank is not of a collection agency, it is not acting as an agent for a bank in servicing past due mortgage loans. Since the bank is collecting a debt on behalf of a third-party investor who purchased the mortgage loan, the bank is not exempt under said section 24 and it is the position of the Division that it is required to be licensed to service mortgage loans more than thirty days past due in the Commonwealth.