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June 6, 2016

Legal Update
Andrew R. Levin

Massachusetts Division of Banks: Law firms engaged in debt collection not required to obtain debt-collector’s license

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On April 1, 2016, the Division of Banks for the Commonwealth of Massachusetts (the “Division”) reversed course on the issue of whether a law firm that engages primarily in debt collection work must register as a debt collector in Massachusetts, and stated that the Division will not require law firms that are primarily engaged in consumer debt collection or regularly collect consumer debt to become licensed as debt collectors solely by virtue of their activities, withdrawing two prior opinions that had answered the same question in the affirmative. The decision was particularly welcomed by law firms who engage in debt collection activity as only a part of their overall practice and who were left questioning their licensure – requirements and by their clients whose collection efforts were in danger if in fact their lawyers should have registered as a debt collector but had not done so.

The issue first arose in September 2013 when a law firm, whose practice was “overwhelmingly concentrated in the area of consumer debt collection, on behalf of its clients” asked for an opinion as to whether it was required to obtain a debt collector license from the Division in order to engage in consumer debt collection activity in Massachusetts. In issuing Opinion 13-018 on November 2, 2015, the Division answered the question in the affirmative, seizing upon the singular nature of the exclusion set forth in M.G.L. c. 93 §24(g), which exempted Massachusetts attorneys “collecting a debt on behalf of a client” from the licensing requirements and holding that the exemption did not apply to law firms where the firm’s principal purpose is the collection of debts, or where the firm regularly collects or attempts to collect debts owed or asserted to be owed to another.

In issuing Opinion 13-018, the Division commented that the determination of whether licensure of a law firm would be required would be case-by-case, focusing on:

  1. the relative portion of a firm’s practice that involves debt collection,
  2. whether, and to what extent, non-attorneys were used by the firm to engage in debt collection activity and whether such work was supervised by attorneys, and
  3. the extent that the firm’s debt collection activities involved traditional legal activities compared to traditional non-legal activities.

Opinion 13-018 provided that the Division’s ruling would not be retroactive and any law firm that was required to be licensed would not be found in violation of the debt collection statute provided that the license was obtained within six months of the opinion.

On February 11, 2016, the Division issued Opinion 16-002, which clarified certain issues related to the licensure requirement, noting among other things that the term “law firm” applied to “one or more attorneys, regardless of corporate structure.” The Division also extended, for six months from the date of Opinion 16-002, the period in which a law firm needed to obtain its license to be in compliance.

On April 1, 2016, without explaining why it was revisiting the issue other than stating that it had reconsidered its interpretation of the attorney-at-law exemption, the Division issued Opinion 13-018w, in which it stated that it was formally withdrawing Opinions 13-018 and 16-002 and that law firms would not have to become licensed as debt collectors merely because they are primarily engaged in consumer debt collection or regularly collect consumer debt.