On April 7, two debt collection trade associations and a debt collector filed a putative class action petition against California’s DFPI in the California Superior Court for the County of San Francisco on behalf of a proposed class of approximately 1,243 licensed debt collectors statewide. The petition challenges licensing fees that the DFPI imposed on debt collectors under the state’s Debt Collection Licensing Act. The petitioners alleged the fees constitute unlawful taxes in violation of Proposition 26, which requires that state-imposed charges not exceed the reasonable cost of regulation and bear a fair relationship to each payor’s burden on, or benefit from, the regulatory program. They alleged the DFPI “grossly overestimated” the number of regulated debt collectors, budgeting for more than 7,000 licensees when only approximately 1,200 applied, and never adjusted its budget to reflect the actual market size. As a result, the petition contends the DFPI assessed a total of $10.2 million in fees for fiscal year 2025 and allocated costs based on licensees’ net proceeds — a metric the petitioners argued measures ability to pay rather than regulatory burden.

The petitioners contended that, unlike other states that impose fixed or capped licensing fees, California’s uncapped, revenue-based assessments were neither predictable nor proportionate, and warned that the fees had already prompted some licensees to withdraw from the state. The petitioners also alleged the DFPI failed to consult a statutorily required advisory committee meaningfully on the fee formula and, though it purportedly did so orally at a committee meeting, never disclosed the assessment-rate factor in formal rulemaking. The petition asserts that the DFPI proposed expanding its licensing definitions to sweep in additional businesses, which the petitioners characterized as an attempt to justify the agency’s “unreasonably large” budget rather than align costs with the actual regulated market. The petitioners argued the fees would ultimately raise the cost of credit in the state and harm its economy.

The petition raised four causes of action: (i) a writ of mandate under California Code of Civil Procedure section 1085; (ii) declaratory relief for due process violations and breach of Proposition 26; (iii) declaratory relief under the Administrative Procedures Act; and (iv) a claim for refund of unconstitutional taxes.