Connecticut’s New Net Worth Requirement for Collectors

In case you missed it, Connecticut recently amended its law to require any person seeking a consumer collection agency license to show a minimum tangible net worth of fifty thousand ($50,000) dollars.

On July 11, 2017, Connecticut Governor Dannel Malloy signed into law Public Act 17-236 which made a number of changes applicable to consumer collection agencies. One of those changes is that, as part of its application, a licensee must now provide a financial statement prepared by a certified public accountant or a public accountant “which evidences that the applicant has a minimum tangible net worth of fifty thousand dollars” (new language is in bold). 

The amendment is effective October 1, 2017. 

While the new requirement creates a mandatory minimum net worth amount, the more concerning question for the industry may be the requirement that the minimum net worth be “tangible.” This type of net worth calculation only includes tangible assets and does not include intangible items such as goodwill. While intangible assets provide value to any company, the new change in Connecticut means agencies cannot include such assets in their financial statement. 

The Connecticut consumer collection agency license renewal checklist, available on the National Mortgage Licensing System (NMLS), has been updated to reflect the new requirement:

Financial Statement: Upload an unaudited financial statement for which the financial data has been assembled by a CPA, but not reviewed for accuracy which evidences that the applicant has a minimum tangible net worth of fifty thousand dollars. Financial statements should include a balance sheet, income statement and statement of cash flows and all relevant notes thereto. Your notes must reflect all assets held in trust in client trust accounts or alternatively, the balance sheet submitted can include client trust account information (by providing a line item in cash assets to reflect restricted funds held on behalf of the client and providing a line item in liabilities to reflect “due clients” information). You will be notified if the Commissioner requires additional information. 

To our knowledge, the Department of Banking has not issued any grace period or delay in the implementation of the change. As a result, companies should assume that the change is immediately applicable for new applications as well as for the upcoming renewal period (November 1 – December 31, 2017). Those seeking renewal should re-evaluate financials to ensure they can demonstrate the appropriate net worth. 

In addition, insideARM has been alerted to the possibility that the Connecticut Department of Banking may also be requiring licensees to maintain a business registration with the Connecticut Secretary of State. The new license and renewal information on the NMLS simply states: 

Certificate of Authority: Entity must register with the Connecticut Secretary of State as applicable. You do not need to attach evidence of registration; it will be checked by the Department upon receipt of your application. 

As the Connecticut license renewal cycle approaches, agencies are encouraged to review all available information on the NMLS site or the Connecticut Department of Banking website. Any questions can be directed to the Department, and remember to consult your attorney.