Collection Agency License Under General Laws Chapter 93, Section 24 - Q4 1999By the Division of Banks
A loan company, planning to sell an existing commercial loan portfolio to a special purpose entity (the "Portfolio Owner") formed solely for the purpose of acquiring the loans, must comply with General Laws chapter 93, section 24.
General Laws chapter 93, section 24 requires that a person or entity engaged in the Commonwealth in the business of collecting or receiving payment for others of any account, bill or other indebtedness, or engaged in soliciting the right to collect or receive payment for another of any such indebtedness shall obtain a license as a collection agency from the Division. The licensing requirement is applicable to the collection of commercial as well as consumer accounts. The Division's regulation at 209 CMR 18.03 defines a "debt" to be "money or its equivalent which is, or is alleged to be, more than 30 days past due and owing, unless a different period is agreed to by the debtor, under a single account as a result of a purchase, lease, or loan of goods, services, or real or personal property."
Where the loan company will continue to service the loans including collecting payments from debtors, and the Portfolio Owner will pay servicing fees to the loan company, and assuming the loan company would be collecting "debt" as described above, the determining issue would be whether the loan company was collecting its own debt or the debt of the Portfolio Owner. It is the position of the Division that since it no longer would own 100% of the loans in the portfolio, it would be collecting the debts of another entity. Accordingly, the loan company would need to obtain a license as a collection agency.